Five Measures of Solvency or Profitability

The balance sheet for Garcon Inc. at the end of the current fiscal year indicated the following:

Income before income tax was $446,400, and income taxes were $66,500 for the current year. Cash dividends paid on common stock during the current year totaled $47,820. The common stock was selling for $225 per share at the end of the year.

Determine each of the following. Round answers to one decimal place, except for dollar amounts which should be rounded to the nearest whole cent. Use the rounded answers for subsequent requirements, if required.

Answer the following true/false

1.A permanent mortgage is one on which interest only has to be paid

2.A pro‑forma income statement is an income statement calculated on a cash basis

3.The best way to evaluate feasibility study financial projections is to convert the projected cash flow figures using net present value (NPV) or internal rate of return (IRR).

4.The concepts of financial management are basically the same for both profit and non-profit organizations

5.Funds raised through proper financial management should never be invested in assets such as food and beverage inventories

LEFO Company uses the periodic inventory system to account for inventories. Information related to LEFO Company's inventory at March 31 is given below:

Date - Description - Units - Unit Cost

March 1 - Beg. Inventory - 10 units - $100

March 8 - Purchase - 10 units - $110

March 17 - Purchase - 10 units - $120

March 24 - Purchase - 10 units - $125

March 30 - Purchase - 10 units - $130

a. Calculate the value of ending inventory using the FIFO cost assumption if 15 units remain on hand at March 31. Calculate COGS.

b. Calculate the value of ending inventory using the LIFO cost assumption if 15 units remain on hand at March 31. Calculate COGS.

c. Calculate the value of ending inventory using the weighted-average cost cost assumption if 15 units remain on hand at March 31. Calculate COGS.

Following are selected accounts for Mergaronite Company and Hill, Inc., as of December 31, 2018. Several of Mergaronite’s accounts have been omitted. Credit balances are indicated by parentheses. Dividends were declared and paid in the same period.

Assume that Mergaronite took over Hill on January 1, 2014, by issuing 7,200 shares of common stock having a par value of $10 per share but a fair value of $100 each. On January 1, 2014, Hill’s land was undervalued by $19,200, its buildings were overvalued by $30,800, and equipment was undervalued by $58,200. The buildings had a 10-year remaining life; the equipment had a 5-year remaining life. A customer list with an appraised value of $104,000 was developed internally by Hill and was to be written off over a 20-year period.

1. Determine the December 31, 2018, consolidated totals for the following accounts:

2. In requirement (a), can the consolidated totals be determined without knowing which method the parent used to account for the subsidiary?

3. If the parent uses the equity method, what consolidation entries would be used on a 2018 worksheet?

Carlsville Company, which began operations in 2015, invests its idle cash in trading securities. The following transactions are from its short-term investments in trading securities. 2015 Jan. 20 Purchased 800 shares of Ford Motor Co. at $26 per share plus a $125 commission. Feb. 9 Purchased 2,200 shares of Lucent at $44.25 per share plus a $578 commission. Oct. 12 Purchased 750 shares of Z-Seven at $7.50 per share plus a $200 commission. Dec. 31 Fair value of the short-term investments in trading securities is $130,000. 2016 Apr. 15 Sold 800 shares of Ford Motor Co. at $29 per share less a $285 commission. July 5 Sold 750 shares of Z-Seven at $10.25 per share less a $102.50 commission. July 22 Purchased 1,600 shares of Hunt Corp. at $30 per share plus a $444 commission. Aug. 19 Purchased 1,800 shares of Donna Karan at $18.25 per share plus a $290 commission. Dec. 31 Fair value of the short-term investments in trading securities is $160,000. 2017 Feb. 27 Purchased 3,400 shares of HCA at $34 per share plus a $420 commission. Mar. 3 Sold 1,600 shares of Hunt at $25 per share less a $250 commission. June 21 Sold 2,200 shares of Lucent at $42 per share less a $420 commission. June 30 Purchased 1,200 shares of Black & Decker at $47.50 per share plus a $595 commission. Nov. 1 Sold 1,800 shares of Donna Karan at $18.25 per share less a $309 commission. Dec. 31 Fair value of the short-term investments in trading securities is $180,000. Required: 1. Prepare journal entries to record these short-term investment activities for the years shown. On December 31 of each year, prepare the adjusting entry to record any necessary fair value adjustment for the portfolio of trading securities.(If no entry is required select No journal entry required in the first entry field. Do not round your intermediate calculations.)

The Hazim Company is a wholesale distributor of automotive replacement parts. For purposes of

this question, assume on January 1, year 3, Hazim Co. adopted the dollar-value LIFO method of

determining inventory costs for financial and income-tax reporting. The following information relates

to this change:

Hazim has continued  to use the FIFO method for internal reporting purposes. Hazim's FIFO

inventories at December 31, Year 3, Year 4, and Year 5, were $100,000, $137,500, and $195,000,

respectively.

The FIFO inventory amounts are converted to dollar-value LIFO amounts using a single inventory

pool and annual cost indexes. Hazim uses the annual indexes developed by its industry trade

association: 1.25 for year 4 and 1.50 for year 5.

Calculate Hazim's dollar-value LIFO inventory at December 31, Year 4 and Year 5. Show all

calculations

Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians’ Leasing purchased a lithotripter from Rand for $2,730,000 and leased it to Mid-South Urologists Group, Inc., on January 1, 2018. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
   

Required:
1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing?
2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians' Leasing from the beginning of the lease through the second rental payment on April 1, 2018. Adjusting entries are recorded at the end of each fiscal year (December 31).
3. Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $2.3 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2018.

Part A Instructions: Use the information provided below for Plant A of Big Noizz Corporation to prepare the Statement of Cost of Goods Manufactured, Cost of Goods Sold and Income Statement for 2017.

Sales $20,000

Raw Materials Used $5,000

Direct Labor Costs $2,000

Selling and Administrative Expenses $5,000

Beginning Raw Material Inventory $600

Ending Raw Material Inventory $2,000

Net Income $400

Beginning Work-in-Process Inventory zero

Ending Work-in-Process Inventory $600

Beginning Finished Goods Inventory $1,400

Ending Finished Goods Inventory $800

Betty DeRose, Inc. operates two departments, the handling department and
the packaging department. During April, the handling department reported
the following information:

                                           % complete      % complete
                                units         DM           conversion 
work in process, April 1        17,000        46%             77%
units completed during April    46,000
work in process, April 30       23,000        29%             14%

The cost of beginning work in process and the costs added during April
were as follows:

                                 DM         Conversion       Total cost
work in process, April 1      $121,279       $203,056         $324,335
costs added during April       363,285        227,619          590,904
total costs                    484,564        430,675          915,239

Calculate the total cost of the handling department's work in process
inventory at April 30 using the FIFO process costing method.

Please provide a one page summary of your key learnings chapter 1 Ethical Reasoning: Implications for Accounting

Dealer Financing On 1/1/X1, Tractor Co. sold a new combine to Jim’s U-Pick farm. The purchase agreement establishes a base price of $100,000, plus a contractual interest rate of 5%, payable in 48 monthly installments of $2,302.93. Control of the combine transferred to Jim when Jim signed the contract and had the combine delivered that same day. If Jim had obtained separate financing (say, a bank loan) for the purchase, his interest rate would have been 6%.

What amount of revenue should Tractor Co. record at the date of sale? What guidance should Tractor Co. apply to the subsequent measurement of its receivable?

Consider the measurement attribute used to record Tractor Co.’s revenues. How does this approach achieve the objective of this measurement attribute?

Hint: You might find it useful to use Microsoft Excel’s formula options: PMT and PV for this example. Excel walks you through how to input numbers into each formula.

Instructions

• Journalize the transactions for the month of January 2018, beginning on page GJ1. Be sure and list the Debit Account(s) first; Credit Account(s) next. Write a brief explanation for each transaction, and skip a line in-between transactions.
• Post the journal entries to the general ledger accounts. Be sure and use the Post Reference #s for each posting. (Hint: the balance of the cash account after all journal entries have been posted should be $9,915).
• Prepare the Trial Balance section of the worksheet.
• Prepare the Adjustments section of the worksheet.
  • Compute and record the adjustment for supplies used during the month. An inventory showed supplies on hand of $250.
  • One month insurance has been used up.
  • Record the adjustment for depreciation of Office Equipment of $85 for the month.
  • Record the adjustment for depreciation of Tools of $125 for the month.
• Complete the worksheet.
• Prepare an Income Statement, Statement of Owner’s Equity, and Balance Sheet for the month. Be sure to add the date to each financial statement.
• Journalize and post the Adjusting entries.
• Journalize and post the Closing entries.
• Prepare a Post-closing Trial Balance.

CHART OF ACCOUNTS

Assets                                                                      Revenue

111     Cash                                                             411     Income from Services

112     Accounts Receivable                               

114     Supplies                                                       Expenses

116     Prepaid Insurance                                     511     Advertising Expense

121     Office Equipment                                       512     Supplies Expense

122     Accum. Depr., Office Equipment           513     Insurance Expense

123     Tools                                                             514     Utilities Expense

124     Accum. Depr., Tools                                 515     Salaries Expense

125     Truck                                                             516     Truck Expense

521     Depreciation Expense - Office Equipment

Liabilities                                                                  522     Depreciation Expense - Tools

211     Accounts Payable   

Owner’s Equity                                                                  

311     Mike Hammer, Capital                              

312     Mike Hammer, Drawing

330     Income Summary

Transactions for the month:

You made the following transactions for Mike’s Quality Repair Services during the month of January:

Jan.    1          Invested $15,000 cash, and a truck with a fair market value of $8,500 into the business.      

3          Paid $1800 to Liberty Mutual for a 1-year insurance policy. The policy is effective immediately. Ck# 1001

4          Bought tools from Sears on account, $7500, Inv. #X-1357

5          Bought computer system from Ben’s Computer Center, $5000, putting $2500 down and putting the balance on account, Ck. #1002, Inv. #Y-4152.

6          Bought supplies-Office Mart, $850, Ck. #1003.

7          Performed services for cash, $1,650.

10        Performed services on account, $1275.

12        Received and paid telephone bill, $420, ck#1004.

13        Bought supplies on account from Office Mart, $900, Inv. AB1477.

15        Received and paid the utility bill, $600, Ck. #1005.

15        Paid salary for office clerk, 1/1-1/15-$1000, Ck# 1006.

20        Received The Times Review bill for advertising for the month, $410, Inv. #TR198.

            (Note that you did not PAY the bill – you only received it).

21        Performed services $7,250, received $2,250 cash, with the balance due in 30 days.

27        Received from clients $1,275, for work completed on January 10.

28        Paid for oil change on truck, $90, ck#1007.

29        Withdrew cash for personal use, $1500, Ck. #1008.

30        Paid salary for office clerk, 1/16-1/30, $1000, ck#1009.

30        Made partial payment of $500 to Office Mart for supplies purchased on January 13th, Ck#1010.

Montoure Company uses a perpetual inventory system. It entered into the following calendar-year purchases and sales transactions

Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification. For specific identification, units sold consist of 600 units from beginning inventory, 380 from the February 10 purchase, 120 from the March 13 purchase, 130 from the August 21 purchase, and 205 from the September 5 purchase. (Round your average cost per unit to 2 decimal places.)

Compute gross profit earned by the company for each of the four costing methods