Cost of Goods Sold

Pietro Frozen Foods, Inc., produces frozen pizzas. For next year, Pietro predicts that 49,400 units will be produced, with the following total costs:

Next year, Pietro expects to purchase $124,500 of direct materials. Projected beginning and ending inventories for direct materials and work in process are as follows:

Pietro expects to produce 49,400 units and sell 48,700 units. Beginning inventory of finished goods is $42,500, and ending inventory of finished goods is expected to be $34,000.

Required:

1. Prepare a statement of cost of goods sold in good form.

2. What if the beginning inventory of finished goods decreased by $5,000? What would be the effect on the cost of goods sold?
  by $

New-Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $940,000, and it would cost another $19,500 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $500,000. The machine would require an increase in net working capital (inventory) of $8,000. The sprayer would not change revenues, but it is expected to save the firm $444,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 40%.

1. What is the Year 0 net cash flow?
   $
2. 
   
3. 
   
4. What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.

   Year 1	$
   Year 2	$
   Year 3	$

5. 
   
6. What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest dollar.
   $
7. 
   
8. 
   
9. If the project's cost of capital is 10 %, what is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar.
   $
   
   Should the machine be purchased?

Fred’s Fun-Time Arcade Rentals-Accounting Cycle On December 1, 2018, Fred and Patsy Forrest formed a corporation called Fred’s Fun-Time Arcade Rentals. The newly formed corporation rents retro video arcade games, pinball machines, dunk tanks, photo booths, moon bounces and more for businesses, community centers, schools, group events, and parties. Fred’s Fun-Time Arcade Rentals immediately began operations by taking over the location of Arcade Alley Games, a vintage classic arcade game rental company that closed. Fred’s Fun-Time Arcade Rentals, uses the following accounts: Cash                                                    Income Taxes Payable Accounts Receivable                          Capital Stock Prepaid Rent                                                   Retained Earnings Unexpired Insurance                                      Dividends Office Supplies                                               Income Summary Arcade Game Machines                                 Rental Fees Revenue Accumulated Depreciation:                       Salaries Expense Arcade Game Machines                          Maintenance Expense Notes Payable                                  Utilities Expense Accounts Payable                                           Rent Expense Interest Payable                                           Office Supplies Expense Salaries Payable                                           Depreciation Expense: Arcade Game Machines Dividends Payable                                          Interest Expense Unearned Rental Fees                                Income Taxes Expense                                              The corporation performs adjusting entries monthly. Closing entries are performed annually on December 31. During December, the corporation entered into the following transactions: Dec. 1   Issued to Fred and Patsy Forrest 30,000 shares of capital stock in exchange for a total of $300,000 cash. Dec. 1   Purchased for $240,000 all of the arcade game machines formerly owned by Arcade Alley Games. Paid $90,000 cash and issued a one-year note payable for $150,000. The note, plus all 12-months of accrued interest, are due November 30, 2019. Dec. 1   Paid $15,000 to Sunshine Realty as three months’ advance rent for warehouse used to store the arcade game machines and office formerly occupied by Arcade Alley Games. Dec. 4 Purchased office supplies on account from Office Depot, $1,300. Payment is due in 30 days. (These supplies are expected to last for several months; debit the Office Supplies asset account.) Dec. 8 Received $6,000 cash as advance payment on pinball arcade game rentals from Party Planners, Inc. (Credit Unearned Rental Fees.) Dec. 12 Paid salaries for the first two weeks in December, $5,400. Dec. 15 Excluding the advance from Party Planners, Inc., arcade game rental fees earned during the first 15 days of December amounted to $22,000, of which $14,000 was received in cash. Dec. 17 Purchased on account from Arcade Restoration, Inc., $400 in parts needed to repair a dunk tank machine. (Debit an expense account.) Payment is due in 10 days. Dec. 23 Collected $2,100 of the accounts receivable recorded on December 15. Dec. 26 Rented a video poker machine to O’Malley’s Pub at a price of $150 per day, to be paid when the video poker machine is returned. O’Malley’s Pub expects to keep the video poker machine for a month. Dec. 26 Paid biweekly salaries, $5,400. Dec. 27 Paid the account payable to Arcade Restoration, Inc., $400. Dec. 28 Declared a dividend of 10 cents per share, payable on January 15, 2019. Dec. 29 Purchased a 12-month insurance policy for $6,000. The policy goes into effect on January 1, 2018. Dec. 31 Received a bill from Verizon Communications for phone service for the month of December, $700. Payment is due in 30 days. Dec. 31 Arcade game rental fees earned during the second half of December amounted to $25,000, of which $19,000 was received in cash. Data for Adjusting Entries a. The advance payment of rent on December 1 covered a period of three months. b. The annual interest rate on the note payable to Arcade Alley Games is 6 percent. c. The arcade game machines are being depreciated by the straight-line method over a period of eight years. d. Office supplies on hand at December 31 are estimated at $700. e. During December, the company earned $3,700 of the rental fees paid in advance from Party Planners, Inc. on December 8. f. As of December 31, six days’ rent on the pinball machines rented to O’Malley’s Pub on December 26 has been earned. g. Salaries earned by employees since the last payroll date (December 26) amounted to $1,600 as of month-end. h. It is estimated that the company is subject to a combined federal and state income tax rate of 30 percent of income before income taxes (total revenue minus all expenses other than income taxes). These taxes will be paid in 2019. Instructions Perform the following steps of the accounting cycle for the month of December: 1.    Journalize the December transactions. Do not record adjusting entries at this point. 2.    Post the December transactions to the appropriate ledger accounts. 3.    Prepare the unadjusted trial balance. 4.    Prepare the necessary adjusting entries for December. 5.    Post the December adjusting entries to the appropriate ledger accounts. 6.    Prepare an income statement and statement of retained earnings for the year ended December 31, and a balance sheet (in report form) as of December 31 7.    Prepare closing entries and post to ledger accounts. 8.    Prepare an after-closing trial balance as of December 31.

What do you understand by impairment of long-lived tangible asset?

Expenditures made to extend an asset's life are called revenue expenditures.

True False

Arnez Company’s annual accounting period ends on December 31, 2017. The following information concerns the adjusting entries to be recorded as of that date.

1. An analysis of the company's insurance policies provided the following facts.
     

Bledsoe Corporation has provided the following data for the month of November:

Additional information:

Any underapplied or overapplied manufacturing overhead is closed out to cost of goods sold.

Required:

Please prepare a Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold.

Comfy Corporation manufactures furniture in several divisions, including the patio furniture division. The manager of the patio furniture division plans to retire in two years.
The manager receives a bonus based on the division’s ROI, which is currently 7%.
One of the machines that the patio furniture division uses to manufacture the furniture is rather old,
and the manager must decide whether to replace it. The new machine would cost $35,000 and would last
10 years. It would have no salvage value. The old machine is fully depreciated and has no trade-in value.
Comfy uses straight-line depreciation for all assets. The new machine, being new and more efficient, would
save the company $5,000 per year in cash operating costs. The only difference between cash flow and net
income is depreciation. The internal rate of return of the project is approximately 7%. Comfy Corporation’s
weighted-average cost of capital is 5%. Comfy is not subject to any income taxes.
1. Should Comfy Corporation replace the machine? Why or why not?
2. Assume that “investment” is defined as average net long-term assets (that is, after depreciation) during the year. Compute the project’s ROI for each of its first five years. If the patio furniture manager is
interested in maximizing his bonus, would he replace the machine before he retires? Why or why not?
3. What can Comfy do to entice the manager to replace the machine before retiring?

On 11 August 2020, Vanya Ho entered into a contract with Diego Toh to renovate her school, The Umbrella Learning Centre and to set up the internet system for the school’s online lessons starting in October. They agreed to the total sum of $100,000 with a 10% deposit of $10,000 to be paid on the signing of the contract. $20,0000 was to be paid upon the design being approved by Vanya Ho. The balance of $70,000 was to be paid on the completion of the renovation works. The contract provided that Diego Toh was to complete the renovation works and handover the school to Vanya Ho not later than 20 September 2020. The design was approved by Vanya Ho on 18 August 2020. Diego Toh proceeded with the renovation which was completed on 19 September 2020. Vanya inspected the renovation work on 20 September 2020. She was not pleased with the internet system when she tested the wifi connection. The wifi signals were weak and created issues for running the online lessons. Diego Toh explained that his electricians have gone back to Malaysia and would only be back early 2021. He insisted that the renovation works including the setting up of the internet system were in accordance with the design as approved by Vanya. On 21 September, Vanya Ho called an independent electrician, Klaus Soh, to inspect and advise on internet system. Klaus Soh explained that the internet system was poorly set-up. He quoted $2,000 to rectify the defects which could be completed by 25 September 2020. On 22 September, Diego Toh contacted Vanya Ho and demanded payment of the balance amount of $70,000. Vanya Ho refused to pay the balance and insisted that Diego Toh rectify the internet system by 26 September 2020.

(b) Diego Toh would like to claim the full amount of $70,000. Discuss the LEGAL PRINCIPLES concerning the performance of the contract, APPLY the legal principles, and CONCLUDE on whether Diego Toh could discharge the contract with Vanya Ho and claim the full amount of $70,000.

Use the following information to answer the questions relating to Mugudia:

Mugudia and Daughters Company is a wholesale seed distributor. The records reflected the following for January Year 1. All purchases and sales were made in cash.

a. Calculate January Year 1 cost of goods sold for Mugudia, assuming that Mugudia uses the FIFO cost flow assumption and a perpetual inventory system.

b. Calculate January Year 1 ending inventory for Mugudia, assuming that Mugudia uses the LIFO cost flow assumption and a perpetual inventory system.

c. Calculate January Year 1 gross profit assuming that Mugudia uses the LIFO cost flow assumption and a periodic inventory system.

d. Calculate January Year 1 cost of goods sold for Mugudia, assuming that Mugudia uses the periodic inventory system and a weighted-average cost flow assumption.

Problem 6-5 (LO 3) Consolidated income statement, affiliated firm for tax. On January 1, 2015, Dawn Corporation exchanges 12,000 shares of its common stock for an 80% interest in Mercer Company. The stock issued has a par value of $10 per share and a fair value of $25 per share. On the date of purchase, Mercer has the following balance sheet: Common stock ($2 par). . . . . . . . . . . . . . . . . . . . $ 20,000 Paid-in capital in excess of par . . . . . . . . . . . . . . 50,000 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 100,000 Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . $170,000 On the purchase date, Mercer has equipment with an 8-year remaining life that is undervalued by $100,000. Any remaining excess cost is attributed to goodwill. There are intercompany merchandise sales. During 2016, Dawn sells $20,000 of merchandise to Mercer. Mercer sells $30,000 of merchandise to Dawn. Mercer has $2,000 of Dawn goods in its beginning inventory and $4,200 of Dawn goods in its ending inventory. Dawn has $2,500 of Mercer goods in its beginning inventory and $3,000 of Mercer goods in its ending inventory. Dawn’s gross profit rate is 40%; Mercer’s is 25%. Required Required 364 Part 1 COMBINED CORPORATE ENTITIES AND CONSOLIDATIONS Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. On July 1, 2015, Dawn sells a machine to Mercer for $90,000. The book value of the machine on Dawn’s books is $50,000 at the time of the sale. The machine has a 5-year remaining life. Depreciation on the machine is included in expenses. The consolidated group meets the requirements of an affiliated group under the tax law and files a consolidated tax return. The corporate tax rate is 30%. The original purchase is not structured as a nontaxable exchange. Dawn uses the cost method to record its investment in Mercer. Since Mercer has never paid dividends, Dawn has not recorded any income on its investment in Mercer. The two companies prepare the following income statements for 2016: Dawn Corporation Mercer Company Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000 $600,000 Less cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 375,000 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 200,000 $225,000 Less expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 185,000 Income before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 120,000 $ 40,000 Prepare a determination and distribution of excess schedule. Prepare the 2016 consolidated net income in schedule form. Include eliminations and adjustments. Provide income distribution schedules to allocate consolidated net income (after tax) to the controlling and noncontrolling interests.

Odessa, Inc., manufactures one model of computer desk. The following data are available regarding units shipped and total shipping costs:

Required:
1. Prepare a scattergraph of Odessa’s shipping cost and draw the line you believe best fits the data.



3. Using the high-low method, calculate Odessa’s total fixed shipping costs and variable shipping cost per unit.



4. Perform a least-squares regression analysis on Odessa’s data. (Use Microsoft Excel or a statistical package to find the coefficients using least-squares regression. Round your answers to 2 decimal places.)



5. Using the regression output, create a linear equation (y = a + bx ) for estimating Odessa’s shipping costs.

Lansing, Inc. provides the following information for one of its department’s operations for June (no new material is added in Department T):

The ending inventory has 3,900 units, which are 60 percent complete with respect to Department T costs and 100 percent complete for prior department costs.

Required:

a. Complete the production cost report using the weighted-average method. (Round "Cost per equivalent unit" to 2 decimal places.)

In this discussion, explain why inherent risk is set for audit objectives for segments (classes of transactions, balances, and presentation and disclosure) rather than for the overall audit.

What is the effect on the amount of evidence the auditor must accumulate when inherent risk changes from medium to high for an audit objective?

Provide examples to illustrate your answer.

Starry Point Music is a not-for-profit organization that brings guest artists to the city. Starry just leased a concert hall for next year's performances, lease payments are $1,000 per month for all 12 months of the year. The society has two types of performances: solo artists and small ensembles. The amount that will be charged for tickets for each type of performance is $320 for solo artists and $420 for ensembles. The only variable costs are marketing and hourly wages and those are estimated at $20 per ticket for both types of performances. The society has scheduled twice as many ensemble performances as solo artists. In addition to the lease costs for the concert hall, the only other fixed cost is the salary of he Artistic Director at $98,000per year. How many tickets for each type of performance must be sold for the Society to break even?