Minden Company is a wholesale distributor of premium European chocolates. The company’s balance sheet as of April 30 is given below:

The company is in the process of preparing a budget for May and has assembled the following data:

1. Sales are budgeted at $220,000 for May. Of these sales, $66,000 will be for cash; the remainder will be credit sales. One-half of a month’s credit sales are collected in the month the sales are made, and the remainder is collected in the following month. All of the April 30 accounts receivable will be collected in May.

2. Purchases of inventory are expected to total $128,000 during May. These purchases will all be on account. Forty percent of all purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the April 30 accounts payable to suppliers will be paid during May.

3. The May 31 inventory balance is budgeted at $56,000.

4. Selling and administrative expenses for May are budgeted at $86,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $6,750 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $565 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $6,700 will be purchased for cash during May.

7. During May, the company will borrow $25,300 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.

Required:

1. Calculate the expected cash collections for May.

2. Calculate the expected cash disbursements for merchandise purchases for May.

3. Prepare a cash budget for May.

4. Prepare a budgeted income statement for May.

5. Prepare a budgeted balance sheet as of May 31.

On October 1, Ebony Ernst organized Ernst Consulting; on October 3, the owner contributed $84,000 in assets in exchange for its common stock to launch the business. On October 31, the company’s records show the following items and amounts.

Cash $ 11,360 Cash dividends $ 2,000

Accounts receivable 14,000 Consulting revenue 14,000

Office supplies 3,250 Rent expense 3,550

Land 46,000 Salaries expense 7,000

Office equipment 18,000 Telephone expense 760

Accounts payable 8,500 Miscellaneous expenses 580

Common Stock 84,000

Using the above information prepare an October 31 balance sheet for Ernst Consulting.

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:

1. Complete the following:

a. Compute the unit product cost under absorption costing.

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

c. Reconcile the variable and absorption costing net operating income (loss) figures.

3. During the second quarter of operations, the company again produced 33,250 units but sold 38,250 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.

During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows:

* $3 per unit variable; $249,000 fixed each year.

The company’s $38 unit product cost is computed as follows:

Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings.

Production and cost data for the first two years of operations are:

Required:

1. Using variable costing, what is the unit product cost for both years?

2. What is the variable costing net operating income in Year 1 and in Year 2?

3. Reconcile the absorption costing and the variable costing net operating income figures for each year.

Capital Rationing Decision for a Service Company Involving Four Proposals

Renaissance Capital Group is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows:

The company's capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.

Required:

1. Compute the cash payback period for each of the four proposals.

2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. If required, round your answers to one decimal place.

3. Using the following format, summarize the results of your computations in parts (1) and (2) by placing the calculated amounts in the first two columns on the left and indicate which proposals should be accepted for further analysis and which should be rejected. If required, round your answers to one decimal place.

4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 15% and the present value of $1 table above. Round to the nearest dollar.

5. Compute the present value index for each of the proposals in part (4). If required, round your answers to two decimal places.

6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4).

7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5).

8. The present value indexes indicate that although Proposal   has the larger net present value, it is not as attractive as Proposal  in terms of the amount of present value per dollar invested. Proposal   requires the larger investment. Thus, management should use investment resources for Proposal   before investing in Proposal  , absent any other qualitative considerations that may impact the decision.

During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows:

* $3 per unit variable; $249,000 fixed each year.

The company’s $38 unit product cost is computed as follows:

Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings.

Production and cost data for the first two years of operations are:

Required:

1. Using variable costing, what is the unit product cost for both years?

2. What is the variable costing net operating income in Year 1 and in Year 2?

3. Reconcile the absorption costing and the variable costing net operating income figures for each year.

Chapter 4 End-of-Chapter (EOC) Quiz The partial work sheet for Camelback Consulting at June 30, 20xx, is as follows. Adjusted Trial Balance Debit Credit Cash 131,000 Accounts Receivable 119,000 Supplies 1,000 Prepaid Rent 18,000 Land 45,000 Building 425,000 Accum Depreciation, Bld 167,000 Accounts Payable 159,000 Salaries Payable 1,000 Unearned Service Revenue 10,000 Long-Term Note Payable 125,000 Owner Capital 102,000 Owner Withdrawals 7,000 Services Revenue 495,000 Salaries Expense 256,000 Supplies Expense 3,000 Rent Expense 34,000 Depreciation Expense, Bld 12,000 Miscellaneous Expense 8,000 _________ Totals 1,059,000 1,059,000 Using good form and proper format, prepare the following financial statements: Income Statement Statement of Owner’s Equity balance sheet Using good form and proper format, prepare Post Closing Trial Balance. Show your work on how temporary accounts were closed.

Rexon Company leases equipment to Ten-Care Company beginning January 1, 2016. The lease terms, provisions, and related events are as follows:

Warren and Erika paid $9,300 in qualified expenses for their son, Cash, to attend the University of Washington. Cash is in his first year of college and attended full-time. How much is Warren and Erik's American opportunity tax credit, without regard to any AGI limitation?

On January 1, 2016, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc. for $622,000 cash. The acquisition-date fair value of the noncontrolling interest was $69,000. At January 1, 2016, Star’s net assets had a total carrying amount of $483,000. Equipment (eight-year remaining life) was undervalued on Star’s financial records by $52,000. Any remaining excess fair value over book value was attributed to a customer list developed by Star (four-year remaining life), but not recorded on its books. Star recorded net income of $45,500 in 2016 and $52,000 in 2017. Each year since the acquisition, Star has declared a $13,000 dividend. At January 1, 2018, Pride’s retained earnings show a $162,500 balance.

Selected account balances for the two companies from their separate operations were as follows:

1) What is consolidated net income for 2018?

Multiple choice:

• $123,000.

• $109,000.

• $125,900.

• $154,500.

2. Assuming that Pride, in its internal records, accounts for its investment in Star using the equity method, what amount of retained earnings would Pride report on its January 1, 2018 consolidated balance sheet?

Multiple Choice

• $273,000.

• $162,500.

• $414,000.

• $186,400.

Mo Meek, Lu Ling, and Barb Beck formed the MLB Partnership by making capital contributions of $83,700, $325,500, and $520,800, respectively. They predict annual partnership net income of $544,500 and are considering the following alternative plans of sharing income and loss: (a) equally; (b) in the ratio of their initial capital investments; or (c) salary allowances of $87,200 to Mo, $65,400 to Lu, and $99,000 to Barb; interest allowances of 10% on their initial capital investments; and the balance shared as follows: 20% to Mo, 40% to Lu, and 40% to Barb.

Required:
1. Use the table to show how to distribute net income of $450,000 for the calendar year under each of the alternative plans being considered

2. Prepare a statement of partners’ equity showing the allocation of income to the partners assuming they agree to use plan (c), that income earned is $209,000, and that Mo, Lu, and Barb withdraw $34,000, $48,000, and $64,000, respectively, at year-end

3. Prepare the December 31 journal entry to close Income Summary assuming they agree to use plan (c) and that net income is $209,000. Mo, Lu, and Barb withdraw $34,000, $48,000, and $64,000, respectively, at year-end. Also close the withdrawals accounts.

You are an eager and ambitious young graduate of the Reginal F. Lewis College of Business at Virginia State University with a new Accounting degree and a great life ahead of you. One of your closest friends is an inventor and an entrepreneur who wants to start a business selling a break-through new drywall screw that he has invented and that he believes works much better than the drywall screws currently on the market. He wants to start the business by opening a factory to produce the screws which can then be sold to either wholesalers or retailers who will then sell them to the general public. After searching all over creation for the right sized building in the perfect location to properly meet the needs of his target customers, he found that the ideal building in which to put up his factory was right here in Petersburg all along.To begin, he was able to purchase the building he needed outright for $500,000. Useful life of the building is 40 years and it is depreciated on a straight-line basis. Estimated salvage value is $25,000. Property taxes on the building each year are $3,000.There is a new machine that another fellow VSU grad has invented that takes the metal for the screws and molds them into their proper size and shape, and takes the plastic for the anchors and molds them into their proper size and shape; an assembly line is attached to the machine where workers put the screws and anchors into boxes. The finished product is a box of 32 drywall screws and their plastic anchors that work unlike any that have come before them. He purchased this machine outright for $150,000. The machine has a useful life of 20 years with no residual value and is depreciated on a straight-line basis. The machine can produce 17,500 boxes of screws and anchors per year. He is sure that he can sell every unit produced.It is determined that to produce the 32 screws in each box will require 128 ounces of metal which is the only material used to make the screws and to produce the 32 anchors in each box will take 32 ounces of plastic which is the only material used to make the anchors. The metal you need is produced by multiple suppliers and you've found one so far that will allow you to buy it at $1.50 per pound. The plastic used is also produced by multiple suppliers and you've found one so far that will allow you to buy it at $.15 per pound. It takes 15 minutes for the workers on the assembly line to box the screws and anchors because they are put in there in a way that prevents them from becoming disorderly. This is part of the quality aspect of the product. Assembly line workers are paid at a rate of $20.00 per hour. Your friend hired a Vice President (VP) who has a degree in Marketing from VSU. She did some market research and determined that in order to be competitive with your new product you are going to charge $25.00 per box of screws and anchors. The Vice President is paid $57,500 per year. He also hired a Chief Operating Officer who will be paid $57,500 per year. Your friend has also asked you to serve as a consultant to his company to make sure that the business gets off to a good start. Your fee has not yet been determined and is not part of this problem.Prepare a variable costing format income statement assuming that the company makes and sells the maximum possible number of units. If the income is negative, what is the reason?Your friend asks you for advice on how to increase the company income. Give him at least two possible solutions to the problem. Which solution did you recommend to your friend? Why did you choose this particular solution?Prepare a memo addressed to your friend/client explaining your options and your recommendation. This memo should be no more than one page long. What is the new break-even point after implementing your solution? What is the maximum income the company can make after implementing your solution? Is this enough profit to justify going into business? Why or why not?Prepare both an absorption costing income statement and a variable costing income statement to reflect your solution. State your assumptions about the number of units produced and the number sold.    

Tiny Biggs Company operates two factories. The company applies factory overhead to jobs on the basis of machine hours in Factory 1 and on the basis of direct labor hours in Factory 2. Estimated factory overhead costs, direct labor hours, and machine hours are as follows:

Required:

A. Determine the factory overhead rate for Factory 1.

$____________ per machine hour

B. Determine the factory overhead rate for Factory 2.

$_____________ per direct labor hour

C. Journalize the Sep. 30 entry to apply factory overhead to production in Factory 1 for September. Refer to the Chart of Accounts for exact wording of account titles. Scroll down to record the entry for Factory 2.

Now journalize the second Sep. 30 entry to apply factory overhead to production in Factory 2 for September. Refer to the Chart of Accounts for exact wording of account titles.

D. Determine the balances of the factory overhead accounts for each factory as of September 30, and indicate whether the amounts represent overapplied factory overhead or underapplied factory overhead.