“In my opinion, we ought to stop making our own drums and accept that outside supplier’s offer,” said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. “At a price of $19 per drum, we would be paying $5.35 less than it costs us to manufacture the drums in our own plant. Since we use 60,000 drums a year, that would be an annual cost savings of $321,000.” Antilles Refining’s current cost to manufacture one drum is given below (based on 60,000 drums per year):

A decision about whether to make or buy the drums is especially important at this time because the equipment being used to make the drums is completely worn out and must be replaced. The choices facing the company are:

Alternative 1: Rent new equipment and continue to make the drums. The equipment would be rented for $168,000 per year.

Alternative 2: Purchase the drums from an outside supplier at $19 per drum.

The new equipment would be more efficient than the equipment that Antilles Refining has been using and, according to the manufacturer, would reduce direct labor and variable overhead costs by 20%. The old equipment has no resale value. Supervision cost ($42,000 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment’s capacity would be 140,000 drums per year.

The company’s total general company overhead would be unaffected by this decision. (Round all intermediate calculations to 2 decimal places.)

Required:

1. To assist the managing director in making a decision, prepare an analysis showing the total cost and the cost per drum for each of the two alternatives given above. Assume that 60,000 drums are needed each year.

a. What will be the total relevant cost of 60,000 drums if they are manufactured internally as compared to being purchased?

b. What would be the per unit cost of each drum manufactured internally? (Round your answer to 2 decimal places.)

c. Which course of action would you recommend to the managing director?

2a-1. What will be the total relevant cost of 120,000 drums if they are manufactured internally?

2a-2. What would be the per unit cost of drums?

2 a-3. What course of action would you recommend if 120,000 drums are needed each year?

2b-1. What will be the total relevant cost of 140,000 drums if they are manufactured internally?

2b-2. What would be the per unit cost of drums? (Round your answer to 2 decimal places.)

2b-3. What course of action would you recommend if 140,000 drums are needed each year?

Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost.

Last year, the company sold 52,000 of these balls, with the following results:

Required:

1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year’s sales level.

1-2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball. If this change takes place and the selling price per ball remains constant at $25.00, what will be next year's CM ratio and the break-even point in balls?

2. Refer to the data in (1-2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $199,000, as last year?

2-1. Refer again to the data in (1-2) above. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement 1a), what selling price per ball must it charge next year to cover the increased labor costs?

3. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company’s new CM ratio and new break-even point in balls?

4. Refer to the data in (3) above.

a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $199,000, as last year?

b. Assume the new plant is built and that next year the company manufactures and sells 52,000 balls (the same number as sold last year). Prepare a contribution format income statement and Compute the degree of operating leverage.

Describe benefit of training within industry in lean production practices?

Required information Problem 13-6AA Income statement computations and format LO A2 [The following information applies to the questions displayed below.] Selected account balances from the adjusted trial balance for Olinda Corporation as of its calendar year-end December 31, 2017, follow.

Debit Credit a. Interest revenue $ 15,000

b. Depreciation expense—Equipment. $ 35,000

c. Loss on sale of equipment 26,850

d. Accounts payable 45,000

e. Other operating expenses 107,400

f. Accumulated depreciation—Equipment 72,600

g. Gain from settlement of lawsuit 45,000

h. Accumulated depreciation—Buildings 176,500

i. Loss from operating a discontinued segment (pretax) 19,250

j. Gain on insurance recovery of tornado damage 30,120

k. Net sales 1,008,500

l. Depreciation expense—Buildings 53,000

m. Correction of overstatement of prior year’s sales (pretax) 17,000

n. Gain on sale of discontinued segment’s assets (pretax) 39,000

o. Loss from settlement of lawsuit 24,750

p. Income taxes expense ?

q. Cost of goods sold 492,500

Problem 13-6 Part 2

2a. What is the amount of income from continuing operations before income taxes?

2b. What is the amount of the income taxes expense?

2c. What is the amount of income from continuing operations?

“In my opinion, we ought to stop making our own drums and accept that outside supplier’s offer,” said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. “At a price of $21 per drum, we would be paying $4.85 less than it costs us to manufacture the drums in our own plant. Since we use 50,000 drums a year, that would be an annual cost savings of $242,500.” Antilles Refining’s current cost to manufacture one drum is given below (based on 50,000 drums per year):

A decision about whether to make or buy the drums is especially important at this time because the equipment being used to make the drums is completely worn out and must be replaced. The choices facing the company are:

Alternative 1: Rent new equipment and continue to make the drums. The equipment would be rented for $157,500 per year.

Alternative 2: Purchase the drums from an outside supplier at $21 per drum.

The new equipment would be more efficient than the equipment that Antilles Refining has been using and, according to the manufacturer, would reduce direct labor and variable overhead costs by 20%. The old equipment has no resale value. Supervision cost ($52,500 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment’s capacity would be 105,000 drums per year.

The company’s total general company overhead would be unaffected by this decision.

Required:

1. Assuming that 50,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier?

2. Assuming that 75,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier?

3. Assuming that 105,000 drums are needed each year, what is the financial advantage (disadvantage) of buying the drums from an outside supplier?

On 1/1/2016, XYZ Corporation purchased 75% of the outstanding voting stock of Sally Corporation for $2,400,000 paid in cash.  On the date of the acquisition, Sally’s shareholders’ equity consisted of the following:

Common stock, $10 par                 $1,000,000

APIC                                                   600,000

Retained Earnings                               800,000

Total SE                                         $2,400,000

The excess fair value of the net assets acquired was assigned 10% to undervalued Inventory (sold in 2016), 40% to undervalued PPE assets with a remaining useful life of 8 years, and 50% to Goodwill.

Comparative trial balances of XYZ Corporation and Sally Corporation at December 31, 2020, are as follows:

Required:

Determine the amounts that would appear in the consolidated financial statements of XYZ Corporation and its subsidiary for each of the following items:

1. Goodwill at December 31, 2020. (2 points)
2. Income to Non-controlling interest for 2020. (3 points)
3. Consolidated retained earnings at December 31, 2019. (2 points)
4. Consolidated retained earnings at December 31, 2020. (2 points)
5. Controlling share of consolidated Net Income for 2020. (3 points)
6. Non-controlling interest at December 31, 2020. (3 points)

Question 1

The Kingsmill Furniture Company sells its products, offering 30 days’ credit to its customers. Uncollectible amounts are estimated to be equal to 2% of credit sales. At the end of the year, the allowance for doubtful accounts is adjusted based on an aging of accounts receivable. The company began 2017 with the following balances in its accounts:

Accounts receivable                $305,000

Allowance for doubtful accounts        (25,500)

During 2017, sales on credit were $1,300,000, cash collections from customers were $1,250,000 and actual write-offs of accounts were $25,000. An aging of accounts receivable at the end of 2017 indicates a required allowance of $30,000.

Required:

1. Determine the balances in accounts receivable and allowance for doubtful accounts at the end of 2017.

2. Determine the bad debt expense for 2017.

3. Prepare journal entries to accrue bad debts, write-off the receivables, and the year-end adjusting entry required to adjust the allowance for doubtful accounts to the required allowance of $30,000. Include explanations for each journal entry.

Packaging Solutions Corporation manufactures and sells a wide variety of packaging products. Performance reports are prepared monthly for each department. The planning budget and flexible budget for the Production Department are based on the following formulas, where q is the number of labor-hours worked in a month:

The Production Department planned to work 4,200 labor-hours in March; however, it actually worked 4,000 labor-hours during the month. Its actual costs incurred in March are listed below:

Required:

1. Prepare the Production Department’s planning budget for the month.

2. Prepare the Production Department’s flexible budget for the month.

3. Prepare the Production Department’s flexible budget performance report for March, including both the spending and activity variances.

1) Prepare the Production Department’s planning budget for the month.

2) Prepare the Production Department’s flexible budget for the month.

3) Prepare the Production Department’s flexible budget performance report for March, including both the spending and activity variances. (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.)

Presented below is the trial balance of Windsor Corporation at December 31, 2017.

Prepare a balance sheet at December 31, 2017, for Windsor Corporation. (Ignore income taxes). (List Current Assets in order of liquidity. List Property, Plant and Equipment in order of Land, Building and Equipment. Enter account name only and do not provide the descriptive information provided in the question.)

In 2021, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2023. Information related to the contract is as follows:

Westgate recognizes revenue over time according to percentage of completion.

1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years.

2021 2022 2023

Revenue ______ _______ ________

Gross P _______ _______ ________

2-a. In the journal below, complete the necessary journal entries for the year 2021 (credit "Various accounts" for construction costs incurred).
2-b. In the journal below, complete the necessary journal entries for the year 2022 (credit "Various accounts" for construction costs incurred).
2-c. In the journal below, complete the necessary journal entries for the year 2023 (credit "Various accounts" for construction costs incurred).

3. Complete the information required below to prepare a partial balance sheet for 2021 and 2022 showing any items related to the contract.

4. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information.

2021 2022 2023

Revenue ______ _______ ________

Gross P _______ _______ ________

5. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information.

2021 2022 2023

Revenue ______ _______ ________

Gross P _______ _______ ________

Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 139,000 $ 127,000 Accounts receivable 343,000 485,000 Inventory 565,000 485,000 Plant and equipment, net 863,000 853,000 Investment in Buisson, S.A. 395,000 434,000 Land (undeveloped) 253,000 252,000 Total assets $ 2,558,000 $ 2,636,000 Liabilities and Stockholders' Equity Accounts payable $ 378,000 $ 338,000 Long-term debt 967,000 967,000 Stockholders' equity 1,213,000 1,331,000 Total liabilities and stockholders' equity $ 2,558,000 $ 2,636,000 Joel de Paris, Inc. Income Statement Sales $ 4,439,000 Operating expenses 3,861,930 Net operating income 577,070 Interest and taxes: Interest expense $ 114,000 Tax expense 196,000 310,000 Net income $ 267,070 The company paid dividends of $149,070 last year. The “Investment in Buisson, S.A.,” on the balance sheet represents an investment in the stock of another company. The company's minimum required rate of return of 15%. Required: 1. Compute the company's average operating assets for last year. 2. Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Round "Margin", "Turnover" and "ROI" to 2 decimal places.) 3. What was the company’s residual income last year?

You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming second quarter. To this end, you have worked with accounting and other areas to gather the information assembled below.

The company sells many styles of earrings, but all are sold for the same price—$19 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings):

The concentration of sales before and during May is due to Mother’s Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.

Suppliers are paid $5.50 for a pair of earrings. One-half of a month’s purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit. Only 20% of a month’s sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

Monthly operating expenses for the company are given below:

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $23,500 in new equipment during May and $55,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $26,250 each quarter, payable in the first month of the following quarter.

The company’s balance sheet as of March 31 is given below:

The company maintains a minimum cash balance of $65,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.

The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $65,000 in cash.

Required:

Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules:

1. a. A sales budget, by month and in total.

    b. A schedule of expected cash collections, by month and in total.

    c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.

    d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.

2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $65,000.

3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.

4. A budgeted balance sheet as of June 30.

Contribution Margin

Harry Company sells 35,000 units at $26 per unit. Variable costs are $17.42 per unit, and fixed costs are $126,100.

Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) income from operations.

1. Choose a country that has adopted IFRSs (i.e. global accounting standards) for at least 3 or more years, as revealed in the accounting literature, and discuss the following: I. In what year did the country adopt IFRSs? II. Were the IFRSs introduced all together (at once), or gradually into the local accounting standards of your chosen country? Explain the possible reason. III. Discuss the benefits and challenges reported in the literature about the adoption of IFRSs in your chosen country.

2. Below is operating information of Weber Light Aircraft, a company that produces light recreational aircraft.

a. Compute the unit product cost using variable costing method.

b. Prepare an income statement for January, February and March using variable costing method.

c. Compute the unit product cost using absorption costing method.

d. Prepare an income statement for January, February and March using absorption costing method

e. Explain why both variable and absorption costing generate same income in a particular month, whereas in another month they generate different incomes.