Problem 3-5A Preparing financial statements from the adjusted trial balance and computing profit margin LO P3, A1 [The following information applies to the questions displayed below.] The adjusted trial balance for Chiara Company as of December 31, 2018, follows. Debit Credit Cash $ 30,000 Accounts receivable 52,000 Interest receivable 18,000 Notes receivable (due in 90 days) 168,000 Office supplies 16,000 Automobiles 168,000 Accumulated depreciation—Automobiles $ 50,000 Equipment 138,000 Accumulated depreciation—Equipment 18,000 Land 78,000 Accounts payable 96,000 Interest payable 20,000 Salaries payable 19,000 Unearned fees 30,000 Long-term notes payable 138,000 Common stock 20,000 Retained earnings, December 31, 2017 235,800 Dividends 46,000 Fees earned 484,000 Interest earned 24,000 Depreciation expense—Automobiles 26,000 Depreciation expense—Equipment 18,000 Salaries expense 188,000 Wages expense 40,000 Interest expense 32,000 Office supplies expense 34,000 Advertising expense 58,000 Repairs expense—Automobiles 24,800 Totals $ 1,134,800 $ 1,134,800 Problem 3-5A Part 1 Required: 1(a) Prepare the income statement for the year ended December 31, 2018. 1(b) Prepare the statement of retained earnings for the year ended December 31, 2018. 1(c) Prepare Chiara Company's balance sheet as of December 31, 2018.

1. Income Statements under Absorption and Variable Costing

   Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and operated at 100% of capacity during the first month. The following data summarize the results for August:

   Sales (15,500 units)				$2,170,000
   Production costs (20,000 units):
   Direct materials		$1,036,000
   Direct labor		498,000
   Variable factory overhead		248,000
   Fixed factory overhead		166,000		1,948,000
   Selling and administrative expenses:
   Variable selling and administrative expenses		$301,900
   Fixed selling and administrative expenses		116,900		418,800

   If required, round interim per-unit calculations to the nearest cent.

   a. Prepare an income statement according to the absorption costing concept.

   Shawnee Motors Inc.
   Absorption Costing Income Statement
   For the Month Ended August 31
   	$
   	$
   	$

   b. Prepare an income statement according to the variable costing concept.

   Shawnee Motors Inc.
   Variable Costing Income Statement
   For the Month Ended August 31
   		$
   		$
   		$
   Fixed costs:
   	$
   		$

   c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)?

   Under the   method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under  , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory increases, the   income statement will have a higher income from operations than will the variable costing income statement.

Choco Company had the following capital structure at January 1, 2018:

Outstanding

Ordinary shares, 600,000 shares $7,200,000

10% stated interest rate convertible bonds issued at par;

each $1,000 bond is convertible into 80 ordinary shares $5,000,000

During 2018, Choco had the following share transactions:

May 1 Issued 50,000 ordinary shares for $30 per share.

Sep. 1 Redeemed 100,000 ordinary shares at $35 per share.

Nov. 1 Converted $2,000,000 of bonds. Net income for 2018 was $1,900,000.

The income tax rate was 32%.

Required: Compute the basic and diluted earnings per share for Choco for 2018 (Round to 2 decimal places).

. Come up with a merchandise company scenario, where this company performed four purchasing transactions and two sales transactions. Then, calculate the balance of ending inventory and cost of goods sold after each sales transaction, assuming the company used the FIFO, Moving Average Cost. Use the following table to answer.

Date	Purchase	Sales (COGS)	Ending inventory

Airnova Inc. has two types of bonds, Bond D and Bond F. Both have 8 percent coupons, make semiannual payments, and are priced at par value. Bond D has 2 years to maturity. Bond F has 15 years to maturity.

Airnova Inc. is considering four different types of stocks. They each have a required return of 20 percent and a dividend of $3.75 for share. Stocks, A, B, and C are expected to maintain constant growth rates in dividends for the near future of 10 percent, 0 percent, and -5 percent, respectively. Stock D is a growth stock and will increase its dividend by 30 percent for the next four years and then maintain a constant 12 percent growth rate after that.

What is the dividend yield for each of the four stocks?

What is the expected capital gains yield?

Discuss the relationship among the various returns that you find for each of the stocks.

1. Profit-Linked Productivity Measurement

   In 20x2, Choctaw Company implements a new process affecting labor and materials.

   Choctaw Company provides the following information so that total productivity can be valued:

   	20x1	20x2
   Number of units produced	540,000	450,000
   Labor hours used	108,000	112,500
   Materials used (lbs.)	2,160,000	1,500,000
   Unit selling price	$20	$22
   Wages per labor hour	$12	$14
   Cost per pound of material	$3.40	$3.50

   Required:

   1. Calculate the cost of inputs in 20x2, assuming no productivity change from 20x1 to 20x2.

   Cost of labor	$
   Cost of materials
   Total PQ cost	$

   2. Calculate the actual cost of inputs for 20x2.

   Cost of labor	$
   Cost of materials
   Total current cost	$

   What is the net value of the productivity changes?
   $

   How much profit change is attributable to each input's productivity change? If an item is negative, use a minus (-) sign to indicate.

   Labor productivity change	$
   Materials productivity change	$

   3. What if a manager wants to know how much of the total profit change from 20x1 to 20x2 is attributable to price recovery? Calculate the total profit change.
   $

   Calculate the price-recovery component.
   $

1.        Angelo uses the equity method to account for its investment in Fischer on January 1. On the date of acquisition, Fischer’s land and buildings were undervalued on its balance sheet. During the year following the acquisition, how do these excesses of fair values over book values affect Angelo's Equity Income from Fischer?

a. Building, Decrease; Land, No Effect

b. Building, Decrease; Land, Decrease

c. Building, Increase;   Land, Increase

d. Building, Increase;   Land, No Effect

2.         On January 2, 2020, Campbell, Inc. purchased a 20% interest in Renner Corp. for $2,000,000 cash. During 2020, Renner's net income was $2,500,000 and it paid dividends of $750,000.

Equity Investment balance should Campbell report at December 31, 2020?

a. $2,500,000

b. $   500,000

c. $2,350,000

d. $2,150,000

3.        On December 31, 2020, Park Inc. paid $500,000 for all of the common stock of Smith Corp. On that date, Smith had assets and liabilities with book values of $400,000 and $100,000; and fair values of $450,000 and $125,000, respectively.

What amount of goodwill will be reported on the December 31, 2020 balance sheet?

a. $ 50,000

b. $100,000

c. $200,000

d. $175,000

4.         Francis, Inc. acquired 40% of Park's voting stock on January 1, 2020 for $420,000. During 2020, Park earned $120,000 and paid dividends of $60,000. During 2021, Park earned $160,000 and paid dividends of $50,000 on April 1 and $40,000 on December 1. On July 1, 2021, Francis sold half of its stock in Park for $275,000 cash.

The Equity Investment balance at December 31, 2020 is:

a. $420,000

b. $444,000

c. $408,000

d.   $492,000

5.         On January 1, 2020, Cracker Co. purchased 40% of Dallas Corp.'s common stock at book value of net assets. The balance in Cracker's Equity Investment account was $820,000 at December 31, 2020. Dallas reported net income of $500,000 for the year ended December 31, 2020, and paid dividends totaling $150,000 during 2020.

How much did Cracker pay for its 40% interest in Dallas?

a. $680,000

b. $500,000

c. $560,000

d. $760,000

The Frost Company has accumulated the following information relevant to its 2018 earnings per share. 1. Net income for 2018, $150,000. 2. Bonds payable: On January 1, 2018, the company had issued 10%, $200,000 bonds. Each $1,000 bond is currently convertible into 20 shares of ordinary share. To date, no bonds have been converted. 3. Bonds payable: On January 31, 2018, the company had issued $540,000 of 5.8% bonds. Each $1,000 bond is currently convertible into 11 shares of ordinary share. To date, no bonds have been converted. 4. Preference share: On July 1, 2017, the company had issued 3,800 shares of $7.5 preference share at $108 per share. Each share of preference share is currently convertible into 2.45 shares of ordinary share. To date, no preference share has been converted and no additional shares of preference share have been issued. The current dividends have been paid. 5. Ordinary share: At the beginning of 2018, 25,000 shares were outstanding. On July 1, 7,000 additional shares were issued. On September 1, a 20% bonus issue was declared and issued. On November 1, 2,000 shares were repurchased by the company. 6. Share options: Options to acquire ordinary share at a price of $33 per share were outstanding during all of 2018. Currently, 4,000 shares may be acquired. TO date, No options have been exercised. 7. Miscellaneous: Stock market prices on ordinary share averaged $41 per share during 2018, and the 2018 ending stock market price was $40 per share. The corporate income tax rate is 30%. Required: Compute the basic and diluted earnings per share for 2018 (Round to 2 decimal places).

Auditing

Identify deficiencies in your client's system of internal control according to GAAS and PCAOB:

Stock compensation expense is 2.2 million understated because the Diector of SEC reporting in Alququerque made incorrect assumptions in the Black Shoes Model, she did not check her work and it was not reviewed by anyone else.

Deficiencies include IPE (information produced by the entity) errors, year-ended inventory count errors, errors, errors in the capitalization of fixed assets, and errors in the conclusion of the entity's Black Sholes model that is used to calculate stock computation

Are these significant deficiencies or material weaknesses?

Bunnell Corporation is a manufacturer that uses job-order costing. On January 1, the company’s inventory balances were as follows:

Raw materials	$	74,000
Work in process	$	31,800
Finished goods	$	52,200

The company applies overhead cost to jobs on the basis of direct labor-hours. For the current year, the company’s predetermined overhead rate of $14.50 per direct labor-hour was based on a cost formula that estimated $580,000 of total manufacturing overhead for an estimated activity level of 40,000 direct labor-hours. The following transactions were recorded for the year:

1. Raw materials were purchased on account, $690,000.
2. Raw materials use in production, $641,800. All of of the raw materials were used as direct materials.
3. The following costs were accrued for employee services: direct labor, $530,000; indirect labor, $150,000; selling and administrative salaries, $308,000.
4. Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing), $457,000.
5. Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $430,000.
6. Manufacturing overhead cost was applied to production. The company actually worked 41,000 direct labor-hours on all jobs during the year.
7. Jobs costing $1,703,300 to manufacture according to their job cost sheets were completed during the year.
8. Jobs were sold on account to customers during the year for a total of $3,510,000. The jobs cost $1,713,300 to manufacture according to their job cost sheets.

1.What is the cost of goods available for sale during the year?

2. What is the journal entry to record the cost of goods sold referred to in item h above?

3. What is the ending balance in Finished Goods?

4. Assuming that the company closes its underapplied or overapplied overhead to Cost of Goods Sold, what is the adjusted cost of goods sold for the year?

Computerised shipping documents

Fremantle Fisheries(FF) operates a fleet of fishing boat out of three ports in Western Australia– Fremantle, Bunbury and Geraldton. Each port has its own fishing fleet and all seafoodcaught is sold through the Fish Marketing Board, a board established by the stategovernment. The accounting procedures for all sales to the Board are centralised and handledby a computerised accounting system at FF’s head office in Perth. The majority of thecompany’s employees work on the fishing boats, and are paid bonuses from head office,depending on the volume, type and quality of seafood caught. This means that head officemust be able to identify the source of each shipment sent to the Board.John Dorey, who was originally based in Geraldton and handled the accounting procedures atGeraldton before computerisation, is now based in Perth as manager of the computerisedaccounting system. His father and two sisters are still based in Geraldton and work for thecompany on the fishing boats, as do many friends of the family.Shipping documents are sent to the Perth head office from all three ports, and the sources ofthe shipment is clearly marked in the top right-head corner of the documents. Occasionally,however, details of the source are missing, and it is not easy to trace the source quickly.Dorey, in his capacity as manager of the system, is keen to keep the system fully operationaland up to date, and has instructed the keyboard operator to insert any one of three Geraldtonsource codes, namely those of his father and two sisters, whenever the source code is missingfrom the shipping document. The keyboard operator knows that the codes given are thosebelonging to his boss’s family, but nevertheless complies with the request for fear that non-compliance may lead to his own dismissal.Required

A, who are the stakeholders in this situation?

B, what are the ethical issues involved here as a result of Dorey’s request and the action takenby the keyboard operator?

C. if you were the keyboard operator, what action (if any) would you take to prevent this situation occurring? Why?

Following are the individual financial statements for Gibson and Davis for the year ending December 31, 2018:

	Gibson				Davis
Sales	$	(847,000	)		$	(470,000	)
Cost of goods sold		390,000				207,000
Operating expenses		271,000				77,000
Dividend income		(24,000	)			0
Net income	$	(210,000	)		$	(186,000	)
Retained earnings, 1/1/18	$	(753,000	)		$	(491,000	)
Net income		(210,000	)			(186,000	)
Dividends declared		80,000				40,000
Retained earnings, 12/31/18	$	(883,000	)		$	(637,000	)
Cash and receivables	$	254,100			$	83,000
Inventory		544,000				310,000
Investment in Davis		603,900				0
Buildings (net)		536,000				680,000
Equipment (net)		408,000				445,000
Total assets	$	2,346,000			$	1,518,000
Liabilities	$	(833,000	)		$	(541,000	)
Common stock		(630,000	)			(340,000	)
Retained earnings, 12/31/18		(883,000	)			(637,000	)
Total liabilities and stockholders' equity	$	(2,346,000	)		$	(1,518,000	)

Gibson acquired 60 percent of Davis on April 1, 2018, for $603,900. On that date, equipment owned by Davis (with a five-year remaining life) was overvalued by $84,000. Also on that date, the fair value of the 40 percent noncontrolling interest was $402,600. Davis earned income evenly during the year but declared the $40,000 dividend on November 1, 2018.

1. Prepare a consolidated income statement for the year ending December 31, 2018.

2. Determine the consolidated balance for each of the following accounts as of December 31, 2018:

• Goodwill
• Equipment (net)
• Common stock
• Buildings (net)
• Dividends declared

Shearwater Council owns and operates an animal shelter that performs three services: housing and finding homes for stray and unwanted animals, providing health care and neutering services for the animals, and pet training services. One facility is dedicated to housing animals waiting to be adopted. A second facility houses veterinarian services. A third facility houses the director, his staff, and several dog trainers. This facility also has several large meeting rooms that are frequently used for classes given by the animal trainers. The trainers work with all of the animals to ensure that they are relatively easy to manage. They also provide dog obedience classes for adopting families.

Estimated annual costs for the animal shelter and its services are as follows:

Director and staff salaries $ 60 000

Animal shelter employees’ salaries 100 000

Veterinarians and technicians 150 000

Animal trainers 40 000

Food and supplies 125 000

Building-related costs 200 000

On average, 75 animals per day are housed at the facility or about 27 375 (75 × 365) animal days in total. In addition, the trainers offer about 125 classes during about 30 weeks throughout the year. On average, 10 families attend each class. Last year the veterinarian clinic experienced 5000 animal visits.

One of the director’s staff members just graduated from an accounting program and would like to set up an ABC system for the shelter so that the director can better understand the cost for each of the shelter’s services. He gathers the following information:

Square footage for each facility:

Animal shelter 5000 square feet

Director and training 3000 square feet

Veterinarian clinic 2000 square feet

Percentage of trainer time used in classes 50%

Supplies used for veterinarian services $75 000

REQUIRED:

A. Identify cost pools and assign costs to them, considering the three cost objects of interest.

B. Determine a cost driver for each cost pool and explain your choice.

C. Calculate the allocation rates for each cost pool and cost driver. Interpret the allocation rate for each cost pool (i.e., explain what it means).

arris Inc. had the following transactions:

1. On May 1, Harris purchased parts from a Japanese company for a U.S. dollar equivalent value of $6,200 to be paid on June 20. The exchange rates were

May 1	1 yen	=	$	0.0070
June 20	1 yen	=		0.0075

2. On July 1, Harris sold products to a Brazilian customer for a U.S. dollar equivalent of $10,400, to be received on August 10. Brazil’s local currency unit is the real. The exchange rates were

July 1	1 real	=	$	0.20
August 10	1 real	=		0.22

Required:
a. Assume that the two transactions are denominated in U.S. dollars. Prepare the entries required for the dates of the transactions and their settlement in U.S. dollars. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b. Assume that the two transactions are denominated in the applicable local currency units of the foreign entities. Prepare the entries required for the dates of the transactions and their settlement in the local currency units of the Japanese company (yen) and the Brazilian customer (real). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations and final answers to nearest whole number.)

May	1	Paid rent for May, $5,000.
	3	Purchased merchandise on account from Martin Co., terms 2/10, n/30, FOB shipping point, $36,000.
	4	Paid freight on purchase of May 3, $600.
	6	Sold merchandise on account to Korman Co., terms 2/10, n/30, FOB shipping point, $68,500. The cost of the merchandise sold was $41,000.
	7	Received $22,300 cash from Halstad Co. on account.
	10	Sold merchandise for cash, $54,000. The cost of the merchandise sold was $32,000.
	13	Paid for merchandise purchased on May 3.
	15	Paid advertising expense for last half of May, $11,000.
	16	Received cash from sale of May 6.
	19	Purchased merchandise for cash, $18,700.
	19	Paid $33,450 to Buttons Co. on account.
	20	Paid Korman Co. a cash refund of $13,230 for returned merchandise from sale of May 6. The invoice amount of the returned merchandise was $13,500, and the cost of the returned merchandise was $8,000.

I've done May 1st-4th