1A. Max's Company invests in the bonds issued by CarmCorp. On 1/1/20 Max buys $10,000 of 8% bonds that pay interest on 1/1. They mature in 5 years and yield 10%. Max pays $9,242. On 12/31/20, the fair market value of the bonds is $11,000. Assuming the bonds are classified as "Trading", prepare the journal entries for 1/1/20, 12/31/20, and 1/1/21. You may omit the closing journal entries.

1B. Max's Company invests in the bonds issued by CarmCorp. On 1/1/20 Max buys $10,000 of 8% bonds that pay interest on 1/1. They mature in 5 years and yield 10%. Max pays $9,242. On 12/31/20, the fair market value of the bonds is $11,000. Assuming the bonds are classified as "HTM", prepare the journal entries for 1/1/20, 12/31/20, and 1/1/21. You may omit the closing journal entries.

1C. Max's Company invests in the bonds issued by CarmCorp. On 1/1/20 Max buys $10,000 of 8% bonds that pay interest on 1/1. They mature in 5 years and yield 10%. Max pays $9,242. On 12/31/20, the fair market value of the bonds is $11,000. Assuming the bonds are classified as "AFS", prepare the journal entries for 1/1/20, 12/31/20, and 1/1/21. You may omit the closing journal entries.

Value-Stream Product Costing, ABC, and DBC

Brasher Company is transitioning to a lean manufacturing system and has just finalized two order fulfillment value streams. One of the value streams has two products, and the other has four products. The two-product value stream produces precision machine parts and the four-product value stream produces machine tools. Before moving to the value-stream structure, Brasher had a well-developed ABC system (one that used all duration drivers) and had experienced good success with the more accurate product costs. Management wanted to be sure that the average costing approach of value-stream costing did not produce distorted product costs. Accordingly, expected weekly activity data were provided for the two-product value streams to see how well average costing worked (see below); however, management did not want to continue using ABC because of its intense data demands and the cost of updating as changes unfolded due to lean practices. In the table below, the driver for each activity is a duration driver. Order processing, for example, uses hours available for processing orders; purchasing uses hours available for processing purchases, etc.

Machine Parts Value Stream

For the Coming Week

                                   Conversion      Part M15        Part M78    Total Activity

Activity                          Cost         (hours used)   (hours used)         hours

Order processing          $ 36,000           600                  1,800               2,400

Purchasing                      72,000           200                    300                   500

Lathe                               108,000         480                  320                   800

Milling                            200,000           800                  1,200               2,000

Drilling                           144,000           720                  1,680               2,400

Assembly                          40,000        1,200                    800               2,000

Inspection                        20,000           800                     200               1,000

Shipping                          18,000            600                     200                  800

Invoicing                         32,000             700                      800                1,500

Totals                          $670,000            6,100                  7,300            13,400

During the week, the machine parts value stream expects to produce and ship 10,000 units of M15 and 30,000 units of M78. Since materials cost is calculated separately, the main concern is with the unit conversion cost.

Required:

1. Calculate the average unit conversion cost for the two machine parts.

2. Calculate the conversion cost per unit for each part, using ABC. Comparing ABC unit cost with the average cost, what would you recommend?

3. Calculate the conversion cost per unit, using DBC (first calculating the cycle time for each product). Based on this outcome, what would you recommend to the management of Brasher Company?

Many accounting and accounting-related professionals are skilled in financial analysis, but most are not skilled in manufacturing. This is especially the case for process manufacturing environments (for example, a bottling plant or chemical factory). To provide professional accounting and financial services, one must understand the industry, product, and processes. We have an ethical responsibility to develop this understanding before offering services to clients in these areas.

Question:

1. How you would obtain an understanding of key business processes of a company that hires you to provide financial services. Please specify an industry, a product, and one selected process and draw on at least one reference, such as a professional journal or industry magazine.

1. Define and explain the differences among several kinds of employee frauds that might occur at an audit client.

1a.Identify and explain the three conditions (i.e., the fraud triangle) that often exist when a fraud occurs.

1b. Identify the relevant assertions and risks of material misstatement that are typically related to the cash balance.

1c. Give examples of substantive procedures used to test cash and relate them to the relevant assertions.

DataSpan, Inc., automated its plant at the start of the current year and installed a flexible manufacturing system. The company is also evaluating its suppliers and moving toward Lean Production. Many adjustment problems have been encountered, including problems relating to performance measurement. After much study, the company has decided to use the performance measures below, and it has gathered data relating to these measures for the first four months of operations.

	Month
	1		2		3		4
Throughput time (days)	?		?		?		?
Delivery cycle time (days)	?		?		?		?
Manufacturing cycle efficiency (MCE)	?		?		?		?
Percentage of on-time deliveries	79	%	75	%	72	%	69	%
Total sales (units)	2790		2671		2534		2438

Management has asked for your help in computing throughput time, delivery cycle time, and MCE. The following average times have been logged over the last four months:

	Average per Month (in days)
	1		2		3		4
Move time per unit	0.9		0.6		0.7		0.7
Process time per unit	3.9		3.7		3.5		3.3
Wait time per order before start of production	24.0		26.3		29.0		31.4
Queue time per unit	4.8		5.4		6.1		6.9
Inspection time per unit	0.5		0.6		0.6		0.5

Required:

1-a. Compute the throughput time for each month.

1-b. Compute the delivery cycle time for each month.

1-c. Compute the manufacturing cycle efficiency (MCE) for each month.

2. Evaluate the company’s performance over the last four months.

3-a. Refer to the move time, process time, and so forth, given for month 4. Assume that in month 5 the move time, process time, and so forth, are the same as in month 4, except that through the use of Lean Production the company is able to completely eliminate the queue time during production. Compute the new throughput time and MCE.

3-b. Refer to the move time, process time, and so forth, given for month 4. Assume in month 6 that the move time, process time, and so forth, are again the same as in month 4, except that the company is able to completely eliminate both the queue time during production and the inspection time. Compute the new throughput time and MCE.

Chapter 14 Completion Questions

Select the necessary words from the list of possibilities to complete the following statements.

Use accrued liabilities, an adjusting journal entry, completeness, less, receiving report, related parties, representations, understatement, zero.

1. An ___ of liabilities will exaggerate the financial strength of a company.

2. Auditors are primarily concerned with establishing the ___ of recorded accounts payable.

3. In comparison to the confirmation of accounts receivable, the confirmation of accounts payable is performed ___ frequently.

4. Accounts payable from important vendors should be confirmed, even though the accounts have ___ balances at year-end.

5. When unrecorded liabilities are discovered by the auditors, they should evaluate whether the omission is sufficiently material to want ___.

6. When observing the taking of a physical inventory at year-end, the auditors will record the serial number of the last ___ issued to verify the accuracy of the cutoff of accounts payable.

7. Proper balance sheet presentation of accounts payable requires that any material amounts payable to ____ such as directors and officers, be disclosed separately from other accounts payable.

8. Auditors often obtain written ___ from management regarding the existence of unrecorded payables.

9. Most ___ represent obligations payable sometime during the succeeding period for services of a continuing nature received before the balance sheet date.

10. Because the auditors are primarily concerned with the ___ of recorded payables, much of the audit work on accounts payable is performed after the year-end date.

Write a brief report - 150-200 words minimum - with at least five sentences and two paragraphs. The report should address: What areas did you have difficulty with and what areas did you find easy to understand in Accounting class? Were you successful in time management or did you run out of time to completing work to a high-quality level? Are there any changes you should make in your approach to Accounting class?

Thank you

2.        The following note appeared in the 2018 annual report of Roca Company:

Inventories

	Inventories (in millions) at December 31 consisted of:					2018	2017
		Finished goods				$ 1,078.3	$     926.7
		Raw materials and work-in-process				716.2	684.7
		Supplies				78.0	65.6
		Total (approximates current cost)				$ 1,872.5	$ 1,677.0
		Reduction to LIFO cost				–	16.1
						$ 1,872.5	$ 1,660.9

Inventories valued at LIFO comprised approximately 44% and 42% of inventories at December 31, 2018 and 2017, respectively.

2-1.	What basis do you believe Roca uses to account for its inventories internally? WHY?
2-2.	Express your opinion as to why Roca reduces its inventories to LIFO cost.
2-3.	If Roca did not adjust its inventories to LIFO cost, what would be the impact on Roca’s
	a.	Net income before tax for 2017?
	b.	Retained earnings as of January 1, 2018 (assuming a 34% tax rate)?

Problem 1. MACRS & Bonus Depreciation. “MMMM That’s Good, Inc.” (or MTG) owns a successful chain of over 150 casual dining restaurants nationwide. Please calculate the tax depreciation expense for 2018 for all of the assets listed below (which constitute all the new assets purchased or placed into service by MTG in 2018): (i) first using just MACRS AND then (ii) using Bonus Depreciation and MACRS.

(i) MTG purchases a building for a new restaurant on June 20, 2018 for $750,000. The land is worth $300,000. On September 15, 2018, MTG purchases new ovens/stoves, prep lines, refrigerators, and a dish washing machine (collectively the “Kitchen Equipment”) at a cost of $150,000. The restaurant is opened for business on September 30, 2018.

(ii) MTG updates its accounting and inventory management systems for 2015 by purchasing new computer hardware at a cost of $4,500 per store (total cost of $675,000). The computer equipment was all purchased on December 15, 2017 and placed into service on January 5, 2018.

(iii) In order to implement pilot testing for a new menu line at select locations, on December 3, 2018, MTG makes a bulk purchase of smoker machines for 30 of its restaurants at a cost of $25,000 each or a total cost of $750,000, and immediately installs the machines and begins use.

Problem 2.

IRC Section 179 & Elections. Assume MTG’s 179 deduction is not limited in 2018, but applying cost recovery using bonus depreciation pushes MTG into a tax loss and so management is looking to limit its total cost recovery to approximately $550,000. Please describe how you might utilize IRC section 179, bonus depreciation elections, & MACRS depreciation to achieve a total deduction for all cost recovery on new assets of $550,000 and then perform the calculation.

Problem 3.

Dispositions. Returning to the facts of Problem 1, if after the pilot testing MTG decided to sell all of the smoker machines on August 10, 2019 for $400,000, what would be the tax consequences including the amount and nature of any gain or loss?

The Alford Group had 260,000 shares of common stock outstanding at January 1, 2021. The following activities affected common shares during the year. There are no potential common shares outstanding.
  

2021
Feb.		28		Purchased 6,000 shares of treasury stock.
Oct.		31		Sold the treasury shares purchased on February 28.
Nov.		30		Issued 24,000 new shares.
Dec.		31		Net income for 2021 is $1,419,000.
2022
Jan.		15		Declared and issued a 2-for-1 stock split.
Dec.		31		Net income for 2022 is $1,419,000.

Required:

1. Determine the 2021 EPS. (Do not round intermediate calculations.)
2. Determine the 2022 EPS.
3. At what amount will the 2021 EPS be presented in the 2022 comparative financial statements?

(For all requirements, Enter your answers in thousands.)

Complete a cash budget for The Stars basketball team based on the following information.  Projected Total Revenues: Q1=$800, Q2=$900, Q3=$950, Q4=$1000, 1 st quarter next yr. = $1000  Accounts Receivable (beginning) are equal to $450  50% of Revenues are cash sales  The rest of the revenues (50%) are collected in the following quarter  Beginning accounts payable are equal to $250  Purchases from vendors each quarter are 50% of next quarter sales  Payments to vendors are scheduled as: 70% in the quarter of the purchases from vendors and the balance of 30% in the following quarter.  Other expenses include: o Team and game expenses which are 30% of total revenues each quarter o Selling and promotional expenses which are 5% of total revenues each quarter o General and administrative expenses which are 7% of total revenues each quarter o Interest expense and taxes which are 6% of total revenues each quarter  The beginning cash balance is $120

One of your audit clients approaches you about doing some additional work for the company. Some of the things that the client needs your firm’s help with include:

Financial projections that includes the acquisition of a failing company.

Preparation of forecasted financial statements for a bank loan.

You are excited to be able to present this new opportunity to the partners of the firm, but there are several factors the firm must consider.

Assume your firm decides to provide these services for the client. Discuss communications that must be made to the client regarding their understanding of the nature of the new engagement. Prepare a PowerPoint presentation to present to the partners discussing these concerns that the firm may have regarding the acceptance of this new engagement.

Your presentation should meet the following criteria:

Be 6-8 slides in length, not including the title and references slides.

1

Which of the following entries records the withdrawal of cash for personal use by D. Bill, the owner of a business?

a.Debit Cash and credit Salary Expense

b.Debit Cash and credit D. Bill, Drawing

c.Debit D. Bill, Drawing and credit Cash

d.Debit Salary Expense and credit Cash

e.None of these choices are correct.

2

A purchase of supplies on account should be recorded as

a.a debit to Supplies and a credit to Cash.

b.a debit to Supplies and a credit to Accounts Payable.

c.a debit to Accounts Payable and a credit to Supplies.

d.a debit to Supplies Expense and a credit to Accounts Receivable.

e.None of these choices are correct.

3

The order the financial statements are prepared is as follows:

a.statement of owner's equity, income statement, balance sheet

b.balance sheet, income statement, statement of owner's equity

c.income statement, statement of owner's equity, balance sheet

d.income statement, balance sheet, statement of owner's equity

4

R. Davis Company has the following accounts and balances at the end of the year:

Cash, $1,200
Accounts Receivable, $280
Office Equipment, $3,000
Accounts Payable, $1,400
Income from Services, $3,500
Rent Expense, $670
Salaries Expense, $1,000

R. Davis, Capital at the beginning of the year was $2,050. Rob Davis also withdrew $800 from the company during the year. What is the amount of total assets reported on the balance sheet?

a.$3,080

b.$9,800

c.$4,480

d.$1,480

5

Jackson Company received cash on account from customers, $2,300. The accountant would record a

a.credit to income from services, $2,300.

b.debit to income from services, $2,300.

c.credit to accounts receivable, $2,300.

d.credit to cash, $2,300.

e.debit to accounts receivable, $2,300

6

Rent Expense is reported on which financial statement?

a.statement of owner's equity

b.balance sheet

c.income statement

d.None of these listed answers are correct.

7

A credit may result in

a.an increase in a revenue account.

b.an increase in a liability account.

c.an increase in the Capital account.

d.a decrease in an asset account.

e.All of these choices are correct.

8

Errors can occur for which of the following reason(s)?

a.Recording only half an entry

b.Recording two debits and no credits

c.Recording incorrect amounts

d.Arithmetic

e.All of these listed answers are correct.

AP9.3 Anna has the task of designing the audit program for the payroll area. There have been no recent changes to the payroll system or to its interface with the general ledger. Among other tests, Anna is considering using the following substantive analytical procedures to gather evidence:

1. Compare payroll tax expenses (such as state and federal unemployment taxes) to the annual payroll multiplied by the statutory tax rates.

2. Compare the relationship between direct labor costs and number of employees with prior periods.

Required

Evaluate the persuasiveness of the evidence obtained from each substantive analytical procedure.

PLEASE MAKE SURE ALL THE NUMBERS ARE CORRECT.

After the success of the company’s first two months, Santana Rey continues to operate Business Solutions. The November 30, 2018, unadjusted trial balance of Business Solutions (reflecting its transactions for October and November of 2018) follows.

No.	Account Title	Debit			Credit
101	Cash	$	39,164
106	Accounts receivable		13,118
126	Computer supplies		2,645
128	Prepaid insurance		1,980
131	Prepaid rent		2,960
163	Office equipment		8,900
164	Accumulated depreciation—Office equipment				$	0
167	Computer equipment		22,400
168	Accumulated depreciation—Computer equipment					0
201	Accounts payable					0
210	Wages payable					0
236	Unearned computer services revenue					0
307	Common stock					71,000
318	Retained earnings					0
319	Dividends		6,400
403	Computer services revenue					32,094
612	Depreciation expense—Office equipment		0
613	Depreciation expense—Computer equipment		0
623	Wages expense		2,200
637	Insurance expense		0
640	Rent expense		0
652	Computer supplies expense		0
655	Advertising expense		1,688
676	Mileage expense		684
677	Miscellaneous expenses		160
684	Repairs expense—Computer		795
	Totals	$	103,094		$	103,094

Business Solutions had the following transactions and events in December 2018.   

Dec.	2		Paid $935 cash to Hillside Mall for Business Solutions’ share of mall advertising costs.
	3		Paid $440 cash for minor repairs to the company’s computer.
	4		Received $4,950 cash from Alex’s Engineering Co. for the receivable from November.
	10		Paid cash to Lyn Addie for six days of work at the rate of $105 per day.
	14		Notified by Alex’s Engineering Co. that Business Solutions’ bid of $7,900 on a proposed project has been accepted. Alex’s paid a $2,100 cash advance to Business Solutions.
	15		Purchased $1,400 of computer supplies on credit from Harris Office Products.
	16		Sent a reminder to Gomez Co. to pay the fee for services recorded on November 8.
	20		Completed a project for Liu Corporation and received $5,925 cash.
	22–26		Took the week off for the holidays.
	28		Received $3,400 cash from Gomez Co. on its receivable.
	29		Reimbursed S. Rey for business automobile mileage (600 miles at $0.24 per mile).
	31		The company paid $1,500 cash in dividends.

The following additional facts are collected for use in making adjusting entries prior to preparing financial statements for the company’s first three months:

a. The December 31 inventory count of computer supplies shows $610 still available.

b. Three months have expired since the 12-month insurance premium was paid in advance.

c. As of December 31, Lyn Addie has not been paid for four days of work at $105 per day.

d. The computer system, acquired on October 1, is expected to have a four-year life with no salvage value.

e. The office equipment, acquired on October 1, is expected to have a five-year life with no salvage value.

f. Three of the four months' prepaid rent have expired.

Required:
1. Prepare journal entries to record each of the December transactions and events for Business Solutions.
2-a. Prepare adjusting entries to reflect a through f.
2-b. Post the journal entries to record each of the December transactions, adjusting entries to the accounts in the ledger.
3. Prepare an adjusted trial balance as of December 31, 2018.
4. Prepare an income statement for the three months ended December 31, 2018.
5. Prepare a statement of retained earnings for the three months ended December 31, 2018.
6. Prepare a balance sheet as of December 31, 2018.
7. Record and post the necessary closing entries as of December 31, 2018.
8. Prepare a post-closing trial balance as of December 31, 2018.