Describe the effect of relief of debt

Entries for Selected Corporate Transactions

Morrow Enterprises Inc. manufactures bathroom fixtures. The stockholders' equity accounts of Morrow Enterprises Inc., with balances on January 1, 20Y5, are as follows:

The following selected transactions occurred during the year:

Required:

1. The January 1 balances have been entered in T accounts for the stockholders' equity accounts. Record the above transactions in the T accounts and provide the December 31 balance where appropriate.

2. Journalize the entries to record the transactions. For a compound transaction, if an amount box does not require an entry, leave it blank.

Jan. 22. Paid cash dividends of $0.14 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $32,760.

Apr. 10. Issued 50,000 shares of common stock for $800,000.

June 6. Sold all of the treasury stock for $442,000.

July 5. Declared a 5% stock dividend on common stock, to be capitalized at the market price of the stock, which is $18 per share.

Aug. 15. Issued the certificates for the dividend declared on July 5.

Nov. 23. Purchased 16,000 shares of treasury stock for $304,000.

Dec. 28. Declared a $0.17-per-share dividend on common stock.

Dec. 31. Closed the credit balance of the income summary account, $6,136,000.

Dec. 31. Closed the two dividends accounts to Retained Earnings.

3. Prepare a retained earnings statement for the year ended December 31, 20Y5. Assume that Morrow Enterprises Inc. had net income for the year ended December 31, 20Y5, of $6,136,000.

4. Prepare the Stockholders' Equity section of the December 31, 20Y5, balance sheet.

In 2018, 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 2020. Information related to the contract is as follows:

Westgate recognizes revenue over time according to percentage of completion.

3. Complete the information required below to prepare a partial balance sheet for 2018 and 2019 showing any items related to the contract. (Do not round intermediate calculations.)

Why do fixed costs create an element of the unknown in the decision-making process?

What questions do you have about certain industries or businesses that operate in the region and what they need or want in terms of innovation, customer service, product or packaging design, management, operations, finances, sustainability, or other areas?

Budgeted Income Statement and Supporting Budgets

The budget director of Birds of a Feather Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for January:

1. Estimated sales for January:

   Birdhouse	6,000 units at $55 per unit
   Bird feeder	4,500 units at $75 per unit

2. Estimated inventories at January 1:

   Direct materials:
   Wood	220 ft.
   Plastic	250 lb.
   Finished products:
   Birdhouse	300 units at $23 per unit
   Bird feeder	240 units at $34 per unit

3. Desired inventories at January 31:

   Direct materials:
   Wood	180 ft.
   Plastic	210 lb.
   Finished products:
   Birdhouse	340 units at $23 per unit
   Bird feeder	200 units at $34 per unit

4. Direct materials used in production:

   In manufacture of BirdHouse:
   Wood	0.80 ft. per unit of product
   Plastic	0.50 lb. per unit of product
   In manufacture of Bird Feeder:
   Wood	1.20 ft. per unit of product
   Plastic	0.75 lb. per unit of product

5. Anticipated cost of purchases and beginning and ending inventory of direct materials:

   Wood	$8.00 per ft.
   Plastic	$1.20 per lb.

6. Direct labor requirements:

   Birdhouse:
   Fabrication Department	0.20 hr. at $15 per hr.
   Assembly Department	0.30 hr. at $12 per hr.
   Bird Feeder:
   Fabrication Department	0.40 hr. at $15 per hr.
   Assembly Department	0.35 hr. at $12 per hr.

7. Estimated factory overhead costs for January:

   Indirect factory wages	$80,000
   Depreciation of plant and equipment	25,000
   Power and light	8,000
   Insurance and property tax	2,000

8. Estimated operating expenses for January:

   Sales salaries expense	$90,000
   Advertising expense	20,000
   Office salaries expense	18,000
   Depreciation expense—office equipment	800
   Telephone expense—selling	500
   Telephone expense—administrative	200
   Travel expense—selling	5,000
   Office supplies expense	250
   Miscellaneous administrative expense	450

9. Estimated other income and expense for January:

   Interest revenue	$300
   Interest expense	224

10. Estimated tax rate: 30%

Required:

1. Prepare a sales budget for January.

2. Prepare a production budget for January.

3. Prepare a direct materials purchases budget for January.

4. Prepare a direct labor cost budget for January.

5. Prepare a factory overhead cost budget for January.

6. Prepare a cost of goods sold budget for January. Work in process at the beginning of January is estimated to be $29,000, and work in process at the end of January is estimated to be $35,400.

7. Prepare a selling and administrative expenses budget for January.

8. Prepare a budgeted income statement for January.

Schedule of Cash Payments for a Service Company

SafeMark Financial Inc. was organized on February 28. Projected selling and administrative expenses for each of the first three months of operations are as follows:

Depreciation, insurance, and property taxes represent $32,000 of the estimated monthly expenses. The annual insurance premium was paid on February 28, and property taxes for the year will be paid in June. 65% of the remainder of the expenses are expected to be paid in the month in which they are incurred, with the balance to be paid in the following month.

Prepare a schedule indicating cash payments for selling and administrative expenses for March, April, and May.

The following condensed balance sheet is for the partnership of Miller, Tyson, and Watson, who share profits and losses in the ratio of 6:2:2, respectively:

a. Assuming no liquidation expenses, calculate the safe payments that can be made to partners at this point in time.

Problem 12-23 Make or Buy Decision [LO12-3]

Silven Industries, which manufactures and sells a highly successful line of summer lotions and insect repellents, has decided to diversify in order to stabilize sales throughout the year. A natural area for the company to consider is the production of winter lotions and creams to prevent dry and chapped skin.

After considerable research, a winter products line has been developed. However, Silven’s president has decided to introduce only one of the new products for this coming winter. If the product is a success, further expansion in future years will be initiated.

The product selected (called Chap-Off) is a lip balm that will be sold in a lipstick-type tube. The product will be sold to wholesalers in boxes of 24 tubes for $9 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product. However, a $139,500 charge for fixed manufacturing overhead will be absorbed by the product under the company’s absorption costing system.

Using the estimated sales and production of 155,000 boxes of Chap-Off, the Accounting Department has developed the following manufacturing cost per box:

The costs above relate to making both the lip balm and the tube that contains it. As an alternative to making the tubes for Chap-Off, Silven has approached a supplier to discuss the possibility of buying the tubes. The purchase price of the supplier's empty tubes would be $1.35 per box of 24 tubes. If Silven Industries stops making the tubes and buys them from the outside supplier, its direct labor and variable manufacturing overhead costs per box of Chap-Off would be reduced by 10% and its direct materials costs would be reduced by 20%.

Required:

1. If Silven buys its tubes from the outside supplier, how much of its own Chap-Off manufacturing costs per box will it be able to avoid? (Hint: You need to separate the manufacturing overhead of $1.90 per box that is shown above into its variable and fixed components to derive the correct answer.)

2. What is the financial advantage (disadvantage) per box of Chap-Off if Silven buys its tubes from the outside supplier?

3. What is the financial advantage (disadvantage) in total (not per box) if Silven buys 155,000 boxes of tubes from the outside supplier?

4. Should Silven Industries make or buy the tubes?

5. What is the maximum price that Silven should be willing to pay the outside supplier for a box of 24 tubes?

6. Instead of sales of 155,000 boxes of tubes, revised estimates show a sales volume of 191,000 boxes of tubes. At this higher sales volume, Silven would need to rent extra equipment at a cost of $56,000 per year to make the additional 36,000 boxes of tubes. Assuming that the outside supplier will not accept an order for less than 191,000 boxes of tubes, what is the financial advantage (disadvantage) in total (not per box) if Silven buys 191,000 boxes of tubes from the outside supplier? Given this new information, should Silven Industries make or buy the tubes?

7. Refer to the data in (6) above. Assume that the outside supplier will accept an order of any size for the tubes at a price of $1.35 per box. How many boxes of tubes should Silven make? How many boxes of tubes should it buy from the outside supplier?

Scenario 1:
Murphy & Johnson is a privately owned manufacturer of small motors for lawnmowers, tractors, and snowmobiles. The components of its financial statements are (1) income before taxes = $21 million, (2) total assets = $550 million, and (3) total revenues = $775 million. Murphy & Johnson's CPA firm uses the normal percentage for income before taxes for a public company for determining overall materiality.

a. Determine overall materiality, and determine tolerable misstatement. Explain your answer.

b. During the course of the audit, Murphy & Johnson’s CPA firm detected two misstatements that aggregated to an overstatement of income of $1.25 million. Evaluate the audit findings. Explain your answer.

Scenario 2:

Delta Investments provides a group of mutual funds for investors. The components of its financial statements are (1) income before taxes = $40 million, (2) total assets = $4.3 billion, and (3) total revenues = $900 million. Delta Investments' CPA firm uses the percentage applicable on total (net) assets for determining overall materiality.

a. Determine overall materiality, and determine tolerable misstatement. Explain your answer.

b. During the course of the audit, Delta’s CPA firm detected two misstatements that aggregated to an overstatement of income of $5.75 million. Evaluate the audit findings. Explain your answer.

Scenario 3:

Swell Computers is a public company that manufactures desktop and laptop computers. The components of the financial statements are: (1) income before taxes = $500,000, (2) total assets = $2.2 billion, and (3) total revenues = $7 billion. Swell Computers' CPA firm might use the lowest percentage for total assets for determining overall materiality, but they also consider qualitative factors.

a. Determine overall materiality and tolerable misstatement. Explain your answer.

b. During the course of the audit, Swell’s CPA firm detected one misstatement that resulted in an overstatement of income by $1.5 million. Evaluate the audit findings. Explain your answer.

Equipment is purchased at a cost of $80,000. As a result, annual cash revenues are expected to increase by $45,000; annual cash expenses are expected to increase by $12,000; straight-line depreciation is used; the asset has a seven-year life; the salvage value is $10,000. Assume the company is in a 34% tax bracket.

Determine the NPV assuming a minimum required rate of return of 8%?

Please kindly explain in detail how you arrived at your answers especially how you calculate the PV. Thank you

Required information

Problem 14-23 Preparing a master budget for retail company with no beginning account balances LO 14-2, 14-3, 14-4, 14-5, 14-6

[The following information applies to the questions displayed below.]

Finch Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, 2019. The company president formed a planning committee to prepare a master budget for the first three months of operation. As budget coordinator, you have been assigned the following tasks:

Problem 14-23 Part 1

Required

1. October sales are estimated to be $340,000, of which 35 percent will be cash and 65 percent will be credit. The company expects sales to increase at the rate of 20 percent per month. Prepare a sales budget.

2. The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.

3. The cost of goods sold is 70 percent of sales. The company desires to maintain a minimum ending inventory equal to 20 percent of the next month’s cost of goods sold. However, ending inventory of December is expected to be $12,500. Assume that all purchases are made on account. Prepare an inventory purchases budget.

4. The company pays 60 percent of accounts payable in the month of purchase and the remaining 40 percent in the following month. Prepare a cash payments budget for inventory purchases.

5. Budgeted selling and administrative expenses per month follow:

1. *The capital expenditures budget indicates that Finch will spend $133,000 on October 1 for store fixtures, which are expected to have a $25,000 salvage value and a two-year (24-month) useful life.

Use this information to prepare a selling and administrative expenses budget.

6. Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred. Prepare a cash payments budget for selling and administrative expenses.

7. Finch borrows funds, in increments of $1,000, and repays them on the last day of the month. Repayments may be made in any amount available. The company also pays its vendors on the last day of the month. It pays interest of 2 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $17,000 cash cushion. Prepare a cash budget.

8. Prepare a pro forma income statement for the quarter.

9. Prepare a pro forma balance sheet at the end of the quarter.

10. Prepare a pro forma statement of cash flows for the quarter.

Compute and Interpret Altman's Z-scores Following is selected financial information for Netflix, for 2018 and 2017. $ thousands, except per share data 2018 2017 Current assets $9,694,135 $7,669,974 Current liabilities 6,487,320 5,466,312 Total assets 25,974,400 19,012,742 Total liabilities 20,735,635 15,430,786 Shares outstanding 436,598,597 433,392,686 Retained earnings 2,942,359 1,731,117 Stock price per share 267.66 191.96 Sales 15,794,341 11,692,713 Earnings before interest and taxes 1,605,226 838,679 Compute and interpret Altman Z-scores for the company for both years. (Do not round until your final answer; then round your answers to two decimal places.) 2018 z-score = Answer 2017 z-score = Answer Which of the following best describes the company's likelihood to go bankrupt given the z-score in 2017 compared to 2018. The z-score in 2018 increased. Z-scores for both years are in the gray area indicating some risk of bankruptcy. The z-score in 2018 increased, which suggests the company's risk of bankruptcy has increased. The z-score in 2018 increased. Z-scores for both years indicate low bankruptcy potential in the short term. The z-score in 2018 decreased, which suggests the company's risk of bankruptcy has decreased.

[The following information applies to the questions displayed below.]

The following data pertain to Lawn Master Corporation’s top-of-the-line lawn mower.

To achieve a target price of $541 per lawn mower, the markup percentage is 12.7 percent on total unit cost.

Required:

1. What is the fixed selling and administrative cost allocated to each unit of Lawn Master’s top-of-the-line mower? (Do not round your intermediate computations. Round your final answer to the nearest dollar amount.)
2. For each of the following cost bases, develop a cost-plus pricing formula that will result in a target price of $541 per mower: (Round your percentage answers to 2 decimal places (i.e., .1234 should be entered as 12.34).)