The text states, "Over sufficiently long time periods, net income equals cash inflows minus cash outflows, other than cash flows with owners." Demonstrate the accuracy of this statement in the following scenario: Two friends contributed $50,000 each to form a new business. The owners used the amounts contributed to purchase a machine for $100,000 cash. They estimated that the useful life of the machine was five years and the salvage value was $20,000. They rented out the machine to a customer for an annual rental of $25,000 a year for five years. Annual cash operating costs for insurance, taxes, and other items totaled $6,000 annually. At the end of the fifth year, the owners sold the equipment for $22,000, instead of the $20,000 salvage value initially estimated. (Hint: Compute the total net income and the total cash flows other than cash flows with owners for the five-year period as a whole.)

totals $ $ $ $

33. $____________Revenue:                                           37. $__________Supplies:                               

34. $____________Net Income:                                      38. $__________Total Assets:                        

35. $____________Issuance:                                           39. $__________Stockholders’ Equity:         

36. $____________Dividends:                                         40. $__________Total L & SE:        

Michelle J. and Fred M. Smith are married taxpayers who file a joint return. Their Social Security numbers are 123-45-6789 and 111-11-1112, respectively. Michelle’s birthday is September 21, 1971, and Fred’s is June 27, 1970. They live at 473 Revere Avenue, Stony Brook, 01850. Michelle is the office manager for Stony Brook Dental Clinic, 433 Broad Street, Stony Brook, NY 01850 (employer identification number 98-7654321). Fred is the manager of a Super Burgers fast-food outlet owned and operated by Plymouth Corporation, 1247 Central Avenue, Hauppauge, NY 11788 (employer identification number 11-1111111).


The following information is shown on their Wage and Tax Statements (Form W–2) for 2018.

The Smiths provide over half of the support of their two children, Cynthia (born January 25, 1994, Social Security number 123-45-6788) and John (born February 7, 1998, Social Security number 123-45-6786). Both children are full-time students and live with the Smiths except when they are away at college. Cynthia earned $6,200 from a summer internship in 2018, and John earned $3,800 from a part-time job.


During 2018, the Smiths provided 60% of the total support of Fred’s widower father, Sam Smith (born March 6, 1942, Social Security number 123-45-6787). Sam lived alone and covered the rest of his support with his Social Security benefits. Sam died in November, and Fred, the beneficiary of a policy on Sam’s life, received life insurance proceeds of $1,600,000 on December 28.


The Smiths had the following expenses relating to their personal residence during 2018:

•                    When they filed their 2017 state return in 2018, the Smiths paid additional state income tax of $900.

•                    During 2018, Michelle and Fred attended a dinner dance sponsored by the Stony Brook Police Disability Association (a qualified charitable organization). The Smiths paid $300 for the tickets. The cost of comparable entertainment would normally be $50.

•                     The Smiths contributed $5,000 to Stony Brook Presbyterian Church and gave used clothing (cost of $1,200 and fair market value of $350) to the Salvation Army. All donations are supported by receipts, and the clothing is in very good condition.

•                     Via a crowdfunding site (gofundme.com), Michelle and Fred made a gift to a needy family who lost their home in a fire ($400). In addition, they made several cash gifts to homeless individuals downtown (estimatedto be $65).

•                     In 2018, the Smiths received interest income of $2,750, which was reported on a Form 1099–INT from Second National Bank, 125 Oak Street, Stony Brook, NY 01850 (Employer Identification Number 98-7654322).

•                     The home mortgage interest was reported on Form 1098 by Stony Brook Commercial Bank, P.O. Box 1000, Stony Brook, NY 01850 (Employer Identification Number 98-7654323). The mortgage (outstanding balance of $425,000 as of January 1, 2018) was taken out by the Smiths on May 1, 2014.

•                    Michelle’s employer requires that all employeeswear uniforms to work. During 2018, Michelle spent $850 on new uniforms and $566 on laundry charges.

•                     Fred paid $400 for an annual subscription to the Journal of Franchise Managementand $741 for annual membership dues to his professional association.

•                    Neither Michelle’s nor Fred’s employer reimburses for employee expenses.

•                     The Smiths do not keep the receipts for the sales taxes they paid and had no major purchases subject to sales tax.

•                     All members of the Smith family had health insurance coverage for all of 2018.

•                     This year the Smiths gave each of their children $2,000, which was then deposited into their Roth IRAs.

•                    Michelle and Fred paid no estimated Federal income tax. Neither Michelle nor Fred wants to designate $3 to the Presidential Election Campaign Fund.

REQUIRED: Tax Computation


Prepare their Federal and NYS tax returns. Compute net tax payable or refund due for Michelle and Fred Smith for 2018. If they have overpaid, they want the amount to be refunded to them. If you use tax forms for your computations, you will need Forms 1040 and Schedules A and B.


You must prepare Form 1040, Schedules A & B and any other appropriate forms and schedules.  You may use tax software such as ProConnect or TurboTax, or manually prepare their tax returns.

Prepare their Federal and NYS income tax returns. Assume they were NYS residents for the entire year

Milden Company has an exclusive franchise to purchase a product from the manufacturer and distribute it on the retail level. As an aid in planning, the company has decided to start using a contribution format income statement. To have data to prepare such a statement, the company has analyzed its expenses and has developed the following cost formulas:

Management has concluded that shipping expense is a mixed cost, containing both variable and fixed cost elements. Units sold and the related shipping expense over the last eight quarters follow:

Milden Company’s president would like a cost formula derived for shipping expense so that a budgeted contribution format income statement can be prepared for the next quarter.

2. In the first quarter of Year 3, the company plans to sell 35,000 units at a selling price of $56 per unit. Prepare a contribution format income statement for the quarter. (Do not round your intermediate calculations.)

Pacific Rim Industries is a diversified company whose products are marketed both domestically and internationally. The company’s major product lines are furniture, sports equipment, and household appliances. At a recent meeting of Pacific Rim’s board of directors, there was a lengthy discussion on ways to improve overall corporate profitability. The members of the board decided that they required additional financial information about individual corporate operations in order to target areas for improvement.

Danielle Murphy, the controller, has been asked to provide additional data that would assist the board in its investigation. Murphy believes that income statements, prepared along both product lines and geographic areas, would provide the directors with the required insight into corporate operations. Murphy had several discussions with the division managers for each product line and compiled the following information from these meetings.

1. The division managers concluded that Murphy should allocate fixed manufacturing overhead to both product lines and geographic areas on the basis of the ratio of the variable costs expended to total variable costs.

2. Each of the division managers agreed that a reasonable basis for the allocation of depreciation on plant and equipment would be the ratio of units produced per product line (or per geographical area) to the total number of units produced.

3. There was little agreement on the allocation of administrative and selling expenses, so Murphy decided to allocate only those expenses that were traceable directly to a segment. For example, manufacturing staff salaries would be allocated to product lines, and sales staff salaries would be allocated to geographic areas. Murphy used the following data for this allocation.

4. The division managers were able to provide reliable sales percentages for their product lines by geographical area.

Murphy prepared the following product-line income statement based on the data presented above.

Required:

1. Prepare a segmented income statement for Pacific Rim Industries based on the company’s geographical areas. The statement should show the operating income for each segment. (Do not round your intermediate calculations and round your final answers to the nearest dollar amount.)

Range Energy Corp.’s financial statements for the current year ended December 31, 2017, have been completed and submitted to you for review. The equity account balances a year ago, at December 31, 2016, are as follows:

The only share transactions during 2017 were the declaration and distribution of a 28,000 common share dividend on July 1 and the issuance of 18,000 common shares for cash on October 31. The company’s 2017 profit was $630,880. A cash dividend on the preferred shares was declared on December 1, but was not paid as of December 31. Earnings per share for 2017 were calculated as follows:

Required:
1-a. The earnings per share is incorrect. Indicate what changes should be made to the numerator and the denominator?

Exercise 194

The financial statements of Lowz Company appear below:

Prepare a statement of cash flows for Lowz Company using the direct method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

The deduction for a contribution to a retirement plan for an owner of a sole proprietorship is not taken on Schedule C.

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True

False

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Assuming Lee owns a dog grooming business, which is a sole proprietorship, and he has net self employment income of $100,000 and he pays SE tax of $16,000 (assumed), the most that he can contribute to a Keogh plan is $25,000.

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Assuming Fred owns a fire arms training business, which is a sole proprietorship, and he has net self employment income of $140,000 and he pays SE tax of $20,000 (assumed), the most that he can contribute to a Keogh plan is $26,000.

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Partnerships can have special allocations in which income is allocated disproportionately to ownership

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A family limited partnership generally separates the value of the business equally between the general partner(s) and the limited partners.

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One of the benefits of a FLP is that transfers of the limited partnership interests can be completed at a substantial valuation discount.

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Select a company you are familiar with or one you are currently working in, or one with information publicly available. Using your own words as much as possible, and in not more than 2,000 words (in total):

(a) Provide a brief description of the organisation - background, the organizational structure, the nature of business, the industry and the environment it is operating in, its products/services, etc.

(b) Choose one functional area (e.g. production, sales, customer service etc.) and describe in detail how accounting information is used to facilitate and influence decision makings to maximize firm value.

(c) Discuss on whether the quality of the accounting information you have described achieved the objective of maximizing the firm value. Your comment on the quality of the accounting information can be based on the attributes of accuracy, timeliness and cost of producing the information.

(d) Suggest possible improvements to the quality of the accounting information that the company can adopt.

If you do not complete your posting and your response postings by the due dates, you will not receive credit for this DQ. Your answer is worth 1 point and your response to another is worth 1 pt for a total of 2 points. Late answer or response will not be eligible to receive any points, so be sure you answer and respond by due dates.

DQ 17 What is an activity cost driver?

Compare financial and non-financial performance, and explain why planning and control systems should consider both.

Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler’s personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University.

Ms. Tyler is discouraged over the loss shown for the quarter, particularly because she had planned to use the statement as support for a bank loan. Another friend, a CPA, insists that the company should be using absorption costing rather than variable costing and argues that if absorption costing had been used the company probably would have reported at least some profit for the quarter.

At this point, Ms. Tyler is manufacturing only one product—a swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:

Required:

3. During the second quarter of operations, the company again produced 33,200 units but sold 38,200 units. (Assume no change in total fixed costs.)

a. What is the company’s variable costing net operating income (loss) for the second quarter?

b. What is the company’s absorption costing net operating income (loss) for the second quarter?

c. Reconcile the variable costing and absorption costing net operating incomes for the second quarter.

The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost drivers it uses in its budgeting and performance reports—the number of courses and the total number of students. For example, the school might run two courses in a month and have a total of 62 students enrolled in those two courses. Data concerning the company’s cost formulas appear below:

For example, administrative expenses should be $3,800 per month plus $43 per course plus $6 per student. The company’s sales should average $900 per student.

The company planned to run four courses with a total of 62 students; however, it actually ran four courses with a total of only 54 students. The actual operating results for September appear below:

Required:

Prepare a flexible budget performance report that shows both revenue and spending variances and activity variances for September. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)