The cost of materials entering directly into the manufacturing process is classified as factory overhead cost.

	a.	True
	b.	False

Indirect labor would be included in factory overhead.

	a.	True
	b.	False

Depreciation expense on factory equipment is part of factory overhead cost.

	a.	True
	b.	False

Direct labor cost is an example of a period cost.

	a.	True
	b.	False

Custom-made goods would be accounted for using a process costing system.

	a.	True
	b.	False

In a process costing system, a separate work in process inventory account is maintained for each customer’s job.

	a.	True
	b.	False

A new business client comes to your office. There are three owners of the business. The three individuals, Alan, Bob, and Carol, are thinking about forming a partnership. Alan is only investing $1 million in cash. He will not have anything to do with the daily activities of the business. Bob has had some experience in the business and will be responsible for the day-to-day operations of the business. Carol has a great deal of experience and many contacts within the business. She will be responsible for attracting new clients. Neither Bob nor Carol are investing cash into the partnership. During the first year of operation, the partnership generated a profit of $150,000. None of the partners received distributions during the year.

A. How do the payment of salary and the allocation of profit affect entries and the financial bottom line? Be sure to support your explanation with concrete examples.

B. How could the payment of salary and allocation of profit be a more effective method of splitting the company's profits for the three partners? Explain a scenario in which the three partners would be compensated fairly, and support your answer with logical reasoning.

C. What would be the value of each partner's capital account at the end of the year, given your proposed fair allocation method? Support your answer with quantitative data and an explanation of how you came to this conclusion.

1. Etters Manufacturing Company has provided the following financial data for its most recent month.

Unit Selling Price	$18
Units in beginning inventory	0
Units produced	10,000
Units sold	9,500
Variable costs per unit:
Direct materials	$6
Direct labor	$4
Manufacturing overhead	$3
Selling and administrative costs	$1
Fixed costs:
Manufacturing overhead	$12,000
Selling and administrative costs	$8,000

Required:

Prepare an income statement using an absorption costing format.

LO2

Solution:

Sales                                                                            $171,000

Less cost of goods sold:

   Variable manufacturing                      $123,500

   Fixed manufacturing                               11,400            134,900

Gross profit                                                                      36,100

Less selling and administrative expenses

   Variable                                                   9,500

   Fixed                                                        8,000               17,500

Net operating income                                                   $  18,600

How is the 11,400 (fixed manufacturing) calculated??

Yozamba Technology has two divisions, Consumer and Commercial, and two corporate service departments, Tech Support and Purchasing. The corporate expenses for the year ended December 31, 20Y7, are as follows:

Tech Support Department	$473,100
Purchasing Department	75,600
Other corporate administrative expenses	555,000
Total corporate expense	$1,103,700

The other corporate administrative expenses include officers’ salaries and other expenses required by the corporation. The Tech Support Department charges the divisions for services rendered, based on the number of computers in the department, and the Purchasing Department charges divisions for services, based on the number of purchase orders for each department. The usage of service by the two divisions is as follows:

	Tech Support	Purchasing
Consumer Division	400 computers	1,960 purchase orders
Commercial Division	170	3,440
Total	570 computers	5,400 purchase orders

The service department charges of the Tech Support Department and the Purchasing Department are considered controllable by the divisions. Corporate administrative expenses are not considered controllable by the divisions. The revenues, cost of goods sold, and operating expenses for the two divisions are as follows:

	Consumer	Commercial
Revenues	$7,470,000	$6,186,000
Cost of goods sold	4,109,000	3,119,500
Operating expenses	1,466,000	1,546,000

Required:

Prepare the divisional income statements for the two divisions. Refer to the list of Label and Amount Descriptions for the exact wording of the answer choices for text entries. A colon (:) will fill in where needed.

IRAC (Issue Rule Argument Conclusion) IRAC is a basic method to brief a case. To better understand the cases we read we need to be able to identify the relevant factual and legal issues in them. How do we do this? We look at the underlying facts of the case. In Li v. Yellow Cab the plaintiff turned into a gas station when a cab coming in the opposite direction crashed into plaintiff's car on the rear passenger side. The jury found both drivers were negligent but the cab driver was more at fault than plaintiff. The law in California before Li v. Yellow Cab was that contributory negligence (careless conduct contributing to plaintiff's own injuries) by plaintiff barred plaintiff's recovery. But in Li v. Yellow Cab the California Supreme Court abandoned the contributory negligence doctrine for the comparative negligence doctrine. Under the comparative negligence doctrine a plaintiff is not barred from recovery. Defendant's liability is in proportion to fault. So if the cab driver was 80% at fault and Li was 20% at fault Li (instead of being barred under the doctrine of contributory negligence) could recover under the doctrine of comparative negligence 80% of her damages (pain, suffering, property damage, lost wages, medical expenses, etc.). If she proved $40,000 in total damages and the defendant was 80% at fault her judgment would be $32,000. Under the IRAC method the issue is always in the form of a question; the rule derives from a source of law (constitution, statute, common law or case law, or administrative law); the argument applies the facts of the case to the law; and, the conclusion identifies who wins. Post a reply that puts the following sentences in an order that make a proper brief: Comparative negligence is a doctrine based on liability in proportion to fault. Whether or not comparative negligence should be applied in this case? Plaintiff is entitled to 80% of her proven damages. By determining which party (or parties) is at fault and to what degree a fair and just result can be obtained rather than completely barring recovery to the party who is less at fault. In your reply use the following setup: Issue: (Insert the correct sentence) Rule: (Insert the correct sentence) Argument: (Insert the correct sentence) Conclusion: (Insert the correct sentence)

In the year, TGIT Inc. incurred the following costs:

Direct materials	$ 4.00 per unit
Direct labour	$ 5.00 per unit
Variable manufacturing overhead	$ 3.00 per unit
Fixed manufacturing overhead	$ 100,000
Variable selling expenses	$ 1.00 per unit
Fixed selling expenses	$ 40,000

In the year, TGIT produced 40,000 units and sold 42,000 units. The company had no beginning or ending work-in-process inventory. However, there are 5,000 units in beginning finished goods inventory. The 5,000 units produced in the previous year have the same costs per unit as the units produced in the year.

Hint - be clear about the difference between absorption and variable costing models

Using the information provided, answer the following questions:

a) Without making any calculations, which costing method will produce a higher net income for TGIT?

AnswerVariable CostAbsorption CostNeither

b) How many units are in finished goods inventory on December 31?

Answer units

c) Under variable costing, what is the product cost per unit?

$ Answer per unit

d) Under variable costing, what is the total value of TGIT's finished goods inventory on December 31?

$ Answer

e) Under variable costing,what is the total selling and administrative expense for the year?

$ Answer

f) Under absorption costing, what is the product cost per unit?

$ Answer per unit

g) Under absorption costing, what is the total value of TGIT's finished goods inventory on December 31?

$ Answer

h) Under absorption costing,what is the total selling and administrative expense for the year?

$ Answer

Equivalent Units of Production: Average Cost Method

The following information concerns production in the Finishing Department for May. The Finishing Department uses the average cost method.

ACCOUNT Work in Process—Finishing Department					ACCOUNT NO.
Date		Item	Debit		Credit		Balance
							Debit		Credit
May	1	Bal., 25,100 units, 75% completed					150,600
	31	Direct materials, 123,000 units	450,180				600,780
	31	Direct labor	279,100				879,880
	31	Factory overhead	283,600				1,163,480
	31	Goods transferred, 130,500 units			1,119,690		43,790
	31	Bal., ? units, 30% completed					43,790

a. Determine the number of units in work in process inventory at the end of the month.
units

b. Determine the number of whole units to be accounted for and to be assigned costs and the equivalent units of production for May.

Whole units	units
Equivalent units of production	units

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

Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:

Beech Corporation
Balance Sheet
June 30
Assets
Cash	$	86,000
Accounts receivable		138,000
Inventory		75,000
Plant and equipment, net of depreciation		229,000
Total assets	$	528,000
Liabilities and Stockholders’ Equity
Accounts payable	$	90,000
Common stock		351,000
Retained earnings		87,000
Total liabilities and stockholders’ equity	$	528,000

Beech’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $400,000, $420,000, $410,000, and $430,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 45% in the month of sale and 55% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

3. Each month’s ending inventory must equal 15% of the cost of next month’s sales. The cost of goods sold is 70% of sales. The company pays for 30% of its merchandise purchases in the month of the purchase and the remaining 70% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

4. Monthly selling and administrative expenses are always $56,000. Each month $8,000 of this total amount is depreciation expense and the remaining $48,000 relates to expenses that are paid in the month they are incurred.

5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

Prepare a balance sheet as of September 30.

	Beech Corporation Balance Sheet September 30 Assets Cash Accounts receivable Inventory Plant and equipment, net 0 0 Total assets $0 Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings 0 0 Total liabilities and stockholders' equity $0

Luke Corporation produces a variety of products, each within their own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $5.60 per case, has not had the market success that managers expected and the company is considering dropping Bubbs.

The product-line income statement for the past 12 months follows:

Revenue				$	14,692,650
Costs
Manufacturing costs	$	14,443,895
Allocated corporate costs (@5%)		734,633			15,178,528
Product-line margin				$	(485,878	)
Allowance for tax (@20%)					97,175
Product-line profit (loss)				$	(388,703	)

All products at Luke receive an allocation of corporate overhead costs, which is computed as 5 percent of product revenue. The 5 percent rate is computed based on the most recent year’s corporate cost as a percentage of revenue. Data on corporate costs and revenues for the past two years follow:

	Corporate Revenue		Corporate Overhead Costs
Most recent year	$	113,750,000	$	5,687,500
Previous year	$	76,900,000		4,902,595

Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has employed you as a financial consultant to help with some analysis. In addition to the information given above, Mr. Andre provides you with the following data on product costs for Bubbs:

Month	Cases	Production Costs
1	213,500	$1,151,328
2	220,700	1,173,828
3	218,400	1,182,481
4	234,500	1,198,023
5	250,400	1,200,327
6	243,500	1,221,173
7	223,700	1,196,199
8	250,700	1,239,274
9	242,300	1,237,726
10	256,100	1,249,825
11	253,700	1,254,260
12	262,700	1,284,951

1. Calculate the break-even for Bubbs in cases per month based on production fixed costs and the Contribution Margin calculated above.

2. Write out a profit formula for Bubbs using Q, CM, and FC as in the prior question. For the desired profit note the after tax profit is .05 P Q / (1-TX), where P is the selling price per case and TX is the tax rate. Now solve for Q to determine the number of case Bubbs must produce and sell per month to earn a 5% return on revenues

SafeData Corporation has the following account balances and respective fair values on June 30:

	Book Values				Fair Values
Receivables	$	108,000			$	108,000
Patented technology		123,000				123,000
Customer relationships		0				840,000
In-process research and development		0				524,000
Liabilities		(596,000	)			(596,000	)
Common stock		(100,000	)
Additional paid-in capital		(300,000	)
Retained earnings deficit, 1/1		847,400
Revenues		(312,000	)
Expenses		229,600

Privacy First, Inc., obtained all of the outstanding shares of SafeData on June 30 by issuing 20,000 shares of common stock having a $1 par value but a $70 fair value. Privacy First incurred $10,000 in stock issuance costs and paid $70,000 to an investment banking firm for its assistance in arranging the combination. In negotiating the final terms of the deal, Privacy First also agrees to pay $95,000 to SafeData’s former owners if it achieves certain revenue goals in the next two years. Privacy First estimates the probability adjusted present value of this contingent performance obligation at $28,500.

1. What is the fair value of the consideration transferred in this combination?
2. How should the stock issuance costs appear in Privacy First’s postcombination financial statements?
3. How should Privacy First account for the fee paid to the investment bank?
4. How does the issuance of these shares affect the stockholders’ equity accounts of Privacy First, the parent?
5. How is the fair value of the consideration transferred in the combination allocated among the assets acquired and the liabilities assumed?
6. If Privacy First’s stock had been worth only $45 per share rather than $70, how would the consolidation of SafeData’s assets and liabilities have been affected?

The manager of ABC Company bought 50 trucks for the business use. When he recorded the trucks, he doubled the estimated life of the trucks. The second year he increased the residual value. Requirements 1. Explain why he doubled the estimated life in the first year. 2. Explain why he increased the residual value. 3. Discuss the GAAP issues of each of the above 4. Discuss the ethical issue of each of the above

each requirement with at least 5 complete grammatically correct sentences.

Scottsdale Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2017, the following balances relate to this plan.

Plan assets $480,000

Projected benefit obligation 625,000

Accumulated OCI (PSC) 100,000 Dr.

Accumulated OCI (Gain/Loss) 85,000 Cr.

As a result of the operation of the plan during 2017, the following additional data are provided by the actuary:

Service cost for 2017 $90,000

Settlement rate 9%

Actual return on plan assets in 2017 57,000

Expected return on plan assets 10%

Unexpected loss from change in projected benefit obligation, due to change in actuarial predictions 76,000

Contributions in 2017 99,000

Benefits paid retirees in 2017 85,000

Avg. remaining service life (all employees) 12 years

1.Use the spreadsheet Pensions to prepare a pension worksheet. On the pension worksheet, compute pension expense, pension asset/liability, projected benefit obligation, plan assets, prior service cost, and net gain or loss.

2.Prepare the journal entry using the spreadsheet Journal Entries to record pension expense in 2017.

3.Indicate the reporting of the 2017 pension amounts in the income statement and balance sheet using the spreadsheet Pensions.

4.What is the amount of deferred pension gain or loss that the company will carry forward to 2018? Compute the same items as in (#1), assuming that the expected rate of return is 14% and the Accumulated OCI (Gain/Loss) is a Debit balance at January 1, 2017.

______________________________________________________

King City Specialty Bikes (KCSB) produces high-end bicycles. Costs to manufacture and market the bicycles at last year's volume level of 2,050 bicycles per month are shown in the following table:

Variable manufacturing per unit	$237.00
Total fixed manufacturing	$225,500
Variable nonmanufacturing per unit	$64.00
Total fixed nonmanufacturing	$287,000

KCSB expects to produce and sell 2,450 bicycles per month in the coming year. The bicycles sell for $590 each.

An outside contractor makes an offer to assemble 750 of KCSB's bicycles per month and ship them directly to KCSB's customers as orders are received from its sales force. It will charge KCSB $170 per bicycle. KCSB would provide the materials for each bicycle, but the outside contractor would assemble, box, and ship the bicycles. If KCSB accepts the offer, its variable manufacturing costs would be reduced by 40% for the 750 bicycles assembled by the outside contractor, and its variable nonmanufacturing costs for those 750 bicycles would be cut by 60%. In addition, it would be able to save $22,550 of fixed manufacturing costs; fixed nonmanufacturing costs would be unchanged.

KCSB's marketing manager thinks that it could sell 85 specialty racing bicycles per month for $6,500 each, and its production manager thinks that it could use the idle resources to produce each of these bicycles for variable manufacturing costs of $5,300 per bicycle and variable nonmanufacturing costs of $300 per bicycle.

REQUIRED [Note: Round unit cost computations to the nearest cent]

What is the difference in KCSB's monthly costs between accepting the proposal and rejecting the proposal?   (Note: If the costs of accepting the proposal are less than the costs of rejecting it, enter the difference as a positive number; if the accept costs are more than the reject costs, enter the difference as a negative number.)

The Hope Co. sells direct to retail customers and also to wholesalers. On January,
1, 2018 the balance of the retail accounts receivable was P418,000 while the allowance for bad debts with
respect to retail customers was a credit of P15,200.
The following summary pertains only to retail sales since 2015
Credit Sales - Bad Debts Written off - Bad Debts Recoveries
2015 - P2,220,000 P52,000 P4,300
2016 - 2,450,000 59,000 7,500
2017 - 2,930,000 60,000 7,200
2018 - 3,000,000 62,000 8,400
Bad debts are provided for as a percentage of credit sates. The accountant calculates the percentage annually
by using the experience of the three years prior to the current year. The formula is bad debts written off less
recoveries expressed as a percentage of the credit sales for the same period. Total collections from customers
amounted to P2,760,40. This amount included P50,000 for which the goods are to be delivered next year. During
the year. The company recorded the bad debts written off as bad debts expense
Based on the above and the result of your audit, answer the following:
1. The percentage to be used to compute the allowance for bad debt on December 31,2018 is
2. How much is the doubtful accounts expense for 2018?
3. The doubtful accounts expense for 2018 is overstated by
4. The ledger balance of the accounts receivable after necessary adjust on December 31, 2018 was a debit of
5. The ledger balance of the allowance for bad debts after necessary adjustments on December 31, 2018 was
a credit of

Basil has $123,000 AGI (before any rental loss). He also owns several rental properties in which he actively participates. The rental properties produced a $36,550 loss in the current year. How much, if any, of the rental loss can Basil deduct in the current year?