Explain the concept of value-for-money, describing the problems which may arise in applying the VFM model and suggest how the problems might be overcome.

The Kollar Company has a defined benefit pension plan. Pension information concerning the fiscal years 2018 and 2019 are presented below ($ in millions):

Information Provided by Pension Plan Actuary:

1. Projected benefit obligation as of December 31, 2017 = $1,800.
2. Prior service cost from plan amendment on January 2, 2018 = $400 (straight-line amortization for 10-year average remaining service period).
3. Service cost for 2018 = $520.
4. Service cost for 2019 = $570.
5. Discount rate used by actuary on projected benefit obligation for 2018 and 2019 = 10%.
6. Payments to retirees in 2018 = $380.
7. Payments to retirees in 2019 = $450.
8. No changes in actuarial assumptions or estimates.
9. Net gain—AOCI on January 1, 2018 = $230.
10. Net gains and losses are amortized for 10 years in 2018 and 2019.

Information Provided by Pension Fund Trustee:

1. Plan asset balance at fair value on January 1, 2018 = $1,600.
2. 2018 contributions = $540.
3. 2019 contributions = $590.
4. Expected long-term rate of return on plan assets = 12%.
5. 2018 actual return on plan assets = $180.
6. 2019 actual return on plan assets = $210.

Required:
1. Calculate pension expense for 2018 and 2019.
2. Prepare the journal entries for 2018 and 2019 to record pension expense.
3. Prepare the journal entries for 2018 and 2019 to record any gains and losses and new prior service cost.
4. Prepare the journal entries for 2018 and 2019 to record the cash contribution to plan assets and benefit payments to retirees.

Giggles Comedy Emporium provides entertainment for birthday parties. Over the last year, Giggles has entertained at over 150 birthday parties. Giggles’ business is booming! The company has parties booked solid for the next six months. Customers generally must book 6-8 months in advance to secure a spot. Mark Spear, the owner of Giggles Comedy Emporium, however, is worried. His business is busy, his customers are extremely happy, his employees are happy, but he is barely breaking even. He cannot understand, with his business being so successful, why he is barely able to pay himself a wage. Mark has asked you to help him figure out what he is doing wrong.

The services provided at each party vary. Some customers only want a clown to perform and they handle the other party details themselves. Other customers want a full package – food, cake, entertainment, cleanup, party favours, decorations, and costumes for the kids. Mark has identified the following services that can be provided at a party.

• Clown: most, if not all, parties include a clown who performs for one hour at the party. Mark pays the clown $40 for each party.
• Food (excluding cake): when customers order food for their party through Giggles, Mark outsources this service to Carl’s Catering. Carl charges an average of $12 per child for food.
• Cake: Mark orders birthday cakes through his sister, Sarah, who has a small bakery and makes custom cakes for Giggles. Her smallest cake is 8” (which will serve up to 10 kids) and costs $40. She also makes a 10” cake for $60 (which serves 20 kids).
• Cleanup: Giggles also provides cleanup service. Cleaning staff are paid $15 per hour. Cleanup averages 2 hours per 20 kids.
• Party favours: Party favours can also be ordered through Giggles. These cost $5 per bag to assemble.
• Decorations: Giggles will also fully decorate a party. Decorating staff are paid $15 per hour and take one hour to decorate a party for 20 kids. Decorations cost an average of $50 for party of 20 kids.
• Costumes: Giggles also provides costumes for parties so the kids can dress up in a theme. On average, costumes cost $40 each and can be worn 25 times before needed to be replaced. Costumes are cleaned after every party at a cost of $5 each.  

Mark has set up a fee schedule for each service as follows:

During the two weeks, Mark catered 6 parties. Some details of the parties are shown below:

REQUIRED:

Calculate the customer-level operating income for each customer by preparing a customer profitability analysis. Rank the customers according to profitability.

Question 1

Clean-It-Up manufactures industrial dryers and washers. The following information is available for February:

REQUIRED:

1. Determine the sales-mix and sales-quantity variances.
2. Determine the market-share and market-size variances.
3. Discuss the potential causes of variance.

Contribution Margin Income Statement. Last month Kumar Production Company sold its product for $60 per unit. Fixed production costs were $40,000, and variable production costs amounted to $15 per unit. Fixed selling and administrative costs totaled $26,000, and variable selling and administrative costs amounted to $5 per unit. Kumar Production produced and sold 7,000 units last month.

Required:

1. Prepare a traditional income statement for Kumar Production Company.
2. Prepare a contribution margin income statement for Kumar Production Company.
3. Why do companies use the contribution margin income statement format?

1) If the direct write-off method of accounting for uncollectible receivables is used, what general ledger account is credited when a customer's account is written off as uncollectible?

a.Accounts Receivable

b.Uncollectible Accounts Payable

c.Bad Debt Expense

d.Allowance for Doubtful Accounts

2) If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account that had been written off on March 1, the entry to record the cash receipt after the account has been reinstated under the direct write-off method

a.includes a credit to Bad Debt Expense of $3,650.

b.is the same as it would be under the allowance method.

c.includes a debit to Allowance for Doubtful Accounts of $3,650.

d.includes a credit to Cash of $3,650.

3) If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account that had been written off on March 1, the entry to reinstate the account under the direct write-off method would include

a.a credit to Bad Debt Expense of $3,650.

b.a debit to Bad Debt Expense of $3,650.

c.a debit to Allowance for Doubtful Accounts of $3,650.

d.a credit to Cash of $3,650.

4) Days' sales in receivables is determined by dividing

a.Average Accounts Receivable by Sales.

b.365 by Accounts Receivable.

c.Average Accounts Receivable by Average Daily Sales.

d.None of these choices are correct.

5) Allowance for Doubtful Accounts will have

a.an unadjusted debit balance at the end of the period if the write-offs during the period were equal to the beginning balance.

b.an unadjusted debit balance at the end of the period if the write-offs during the period were less than the beginning balance.

c.an unadjusted credit balance at the end of the period if the write-offs during the period were more than the beginning balance.

d.an unadjusted credit balance at the end of the period if the write-offs during the period were less than the beginning balance.

6) A 90-day, 10% note for $9,000, dated April 15, is received from a customer on account. The face value of the note is

a.$8,100.

b.$9,225.

c.$9,000.

d.$9,900.

7) Under the allowance method, when a specific account is written off,

a.net income will decrease.

b.total assets will be unchanged.

c.total assets will decrease.

d.total assets will increase.

8) In the Current Assets section of the balance sheet, receivables are usually listed in order

a.of size.

b.alphabetically.

c.of due date.

d.that they can be turned into cash.

9) When analyzing accounts receivable, which of the following is not true?

a.Look for trends from year to year for accounts receivable turnover and days' sales in receivables.

b.Never look at accounts receivable turnover and days' sales in receivables ratios together because they could be misleading.

c.Companies may become less efficient in collecting receivables from one year to the next.

d.Companies may become more efficient in collecting receivables from one year to the next.

10) Financial statement data for the year ending December 31 for Gore Co. are as follows:

Determine accounts receivable turnover for the year.

a.6.75

b.3.46

c.7.08

d.6.91

11) Receivables are _________ on the __________, which are listed in order of ____________.

a.current liabilities; balance sheet; size.

b.current assets; balance sheet; liquidity.

c.current liabilities; balance sheet; due date.

d.current assets; balance sheet; importance.

Millard Corporation is a wholesale distributor of office products. It purchases office products from manufacturers and distributes them in the West, Central, and East regions. Each of these regions is about the same size and each has its own manager and sales staff.

The company has been experiencing losses for many months. In an effort to improve performance, management has requested that the monthly income statement be segmented by sales region. The company’s first effort at preparing a segmented income statement for May is given below.

Variable expenses:

Total variable expenses

Traceable fixed expenses:

Total traceable fixed expenses

Common fixed expenses:

Total common fixed expense

Net operating income (loss)

Cost-Volume-Profit Analysis

Suppose you have decided to start a business producing and selling a product of your choice from the following options: custom birthday cakes, lawn mowers or sport jackets.

For your essay, answer the following questions related to your product:

• Briefly describe the product you would produce and sell. What market will you target this product for? At what price would you sell your product? Make a projection of your sales in units for the first year of operations.
• Make a detailed list of the materials needed to make your product. (Use the textbook and/or outside research as necessary.) How much in materials will you need for the year? What is the cost of these materials?
• Make a list of expenses you would incur in your business venture. (Use the textbook and/or outside research as necessary.) Examples include rent, utilities, insurance, direct labor, manufacturing overhead costs and so on. Estimate the cost of each of these expenses per year.
• Classify all of your expenses as either fixed or variable, and calculate how many units of your product you would need to sell to break even.
• How much operating income would you like to earn in the first year? Calculate how many units you would need to sell to meet your target profit.
• How realistic is your potential venture? Do you think your target profit is achievable? Explain.

Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat covers that can be adjusted to fit nearly any small car. The company has a standard cost system in use for all of its products. According to the standards that have been set for the seat covers, the factory should work 980 hours each month to produce 1,960 sets of covers. The standard costs associated with this level of production are:

During August, the factory worked only 1,000 direct labor-hours and produced 2,100 sets of covers. The following actual costs were recorded during the month:

At standard, each set of covers should require 2.5 yards of material. All of the materials purchased during the month were used in production.

Required:

1. Compute the materials price and quantity variances for August.

2. Compute the labor rate and efficiency variances for August.

3. Compute the variable overhead rate and efficiency variances for August.

(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.)

1. The December 31, 2016, statement of financial position of Cotton Corporation includes the following:

9% bonds payable due December 31, 2025     $718,900

The bonds have a face value of $700,000 and were issues on December 31, 2015, at 103, with interest payable on July 1 and December 31 of each year. Cotton uses straight-line amortization to amortize bond premiums or discount. On March 1, 2017, Cotton retired $280,000 of these bonds at 98 plus accrued interest. Ignoring income taxes, what should cotton record as a gain on retirement bonds?

1. $7,560
2. $13,020
3. $13,160
4. $14,000

1. Direct incremental costs incurred to sell shares, such as underwriting costs, should be accounted for as:

1. a reduction of share capital
2. an expense of the period in which the shares are issued
3. an intangible asset
4. a reduction of retained earnings

chapter is about FINANCIAL LEVERAGE AND CAPITAL STRUCTURE POLICY

1. Identify the impact of taxes ad bankruptcy on capital structure choices.

2. What are the essentials of the bankruptcy process?

3. What is the relationship between the value of an unlevered firm and the value of a levered firm once we consider the effect of corporate taxes?

Williams Corp is a manufacturer that is considering adding a new product line - either tillers for tractors (Proposal A) or trailers for trucks (Proposal B). To do so, it will need to invest in new equipment. Williams Corp. has gathered the following information about each proposal: Proposal A's equipment will cost $8,390,000 and is expected to result in annual net cash inflows of $1,530,000 over nine years, with zero residual value at the end of nine years. Proposal B's equipment will cost $7,880,000 and is expected to generate net cash inflows of $980,000 per year for nine years. Estimated residual value for Plan B is $1,075,000. Williams Corp. uses straight-line depreciation and requires an annual rate of return of 6%.

Note: At a 6% discount rate, the present value of annuity of $1 for 9 years is 6.802, and the present value of $1 for 9 years is 0.592.

Answer the following questions. Each question is worth 1 point.

1. Compute depreciation expense per year for Proposal A (using straight-line depreciation):

2. Compute payback period for Proposal A (round answer to one decimal place):

3. Compute accounting rate of return for Proposal B (calculate answer to three decimal places; for example, enter 11.8% as 0.118):

4. Compute net present value (NPV) for Proposal B. Enter as a positive number if NPV is positive, otherwise as a negative. (round answer to the nearest dollar):

5. What is the internal rate of return (IRR) for Proposal A? Enter as a percentage not decimal; e.g., 8.12 not .0812. (Hint: Use an excel formula)

Kenneth Jones opened a real estate agency called Kenneth Jones Realty & recorded the following transactions. Use the acctg equation to record the transactions into journals and T-accounts.

May 1              Invested $10,000 in the business.

May 1              Shared an office with another realtor and paid $2,000 for May rent.

May 3              Paid $400 for May’s janitorial services.

May 3              Paid company cash for office supplies at Office Max for $570.

May 9              Sold a home and immediately collected a commission of $7,400.

May 12            Sold a home but did not immediately collect the commission of $8,200 due to complications at closing.

May 14            Purchased stamps at the U. S. Post Office for $125 using a credit card, which is recorded as Accounts Payable.

May 16            Charged on account an advertisement announcing the opening of the realty business at the Commercial Appeal, $85.

May 17            Sold a home and immediately collected the commission, $4,500

May 18            Bought a computer and printer on account for $1,200.

May 18            Purchased Microsoft office software to install on the computer for $150.

May 18            Signed up for a monthly internet connection to the computer and immediately paid $25 for May.

May 22            Collected the commission of May 12; complications have been resolved.                           

May 23            Paid the month’s telephone bill, $185.

May 24            Paid ½ of the month’s utility bill of $350. Kenneth’s share is $175.

May 31            Kenneth withdrew $2,500 of business cash for personal use.

May 31            Paid $1,900 to a secretary-receptionist.

Wheeling Company is a merchandiser that provided a balance sheet as of September 30 as shown below:

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

1. Sales are budgeted at $360,000 for October and $370,000 for November. Of these sales, 35% will be for cash; the remainder will be credit sales. Forty percent of a month’s credit sales are collected in the month the sales are made, and the remaining 60% is collected in the following month. All of the September 30 accounts receivable will be collected in October.

2. The budgeted cost of goods sold is always 45% of sales and the ending merchandise inventory is always 30% of the following month’s cost of goods sold.

3. All merchandise purchases are on account. Thirty percent of all purchases are paid for in the month of purchase and 70% are paid for in the following month. All of the September 30 accounts payable to suppliers will be paid during October.

4. Selling and administrative expenses for October are budgeted at $80,600, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $3,090 for the month.

Required:

1. Using the information provided, calculate or prepare the following:

a. The budgeted cash collections for October.

b. The budgeted merchandise purchases for October.

c. The budgeted cash disbursements for merchandise purchases for October.

d. The budgeted net operating income for October.

e. A budgeted balance sheet at October 31.

2. Assume the following changes to the underlying budgeting assumptions:

(1) 50% of a month’s credit sales are collected in the month the sales are made and the remaining 50% is collected in the following month, (2) the ending merchandise inventory is always 10% of the following month’s cost of goods sold, and (3) 20% of all purchases are paid for in the month of purchase and 80% are paid for in the following month. Using these new assumptions, calculate or prepare the following:

a. The budgeted cash collections for October.

b. The budgeted merchandise purchases for October.

c. The budgeted cash disbursements for merchandise purchases for October.

d. Net operating income for the month of October.

e. A budgeted balance sheet at October 31.