Port Company purchased 31,500 of the 105,000 outstanding shares of Sund Company common stock on January 1, 20X2, for $189,000. The purchase price was equal to the book value of the shares purchased. Sund reported the following:

Required:
Compute the amounts Port Company should report as the carrying values of its investment in Sund Company at December 31, 20X2, 20X3, and 20X4.

National Bank currently has $500 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is decreasing this requirement to 8 percent.

Show the balance sheet of the Federal Reserve and National Bank if National Bank converts all excess reserves to loans, but borrowers return only 50 percent of these funds to National Bank as transaction deposits.

Show the balance sheet of the Federal Reserve and National Bank if National Bank converts 75 percent of its excess reserves to loans and borrowers return 60 percent of these funds to National Bank as transaction deposits.      

Mesa Company is authorized to issue 1,000,000 shares of its $5 par value common stock and 600,000 shares of its $10 par value preferred stock. During 2018 – its first year of business - the company earned $650,000 of net income and had the following select transactions. No dividends were declared or paid throughout the year. The net income and events below are the only ones that impact Stockholders’ Equity this year.

1. Issued 300,000 shares of common stock for $35 per share
2. Issued 100,000 shares of preferred stock for $55 per share
3. Reacquired 80,000 shares of common stock at $30 per shares
4. Reissued 20,000 shares from treasury for $33 per share
5. Reissued 10,000 shares from treasury for $35 per share
6. Reissued 20,000 shares from treasury for $25 per share
7. Reissued 5,000 shares from treasury for $27 per share

Required: Prepare journal entries OR a financial statements effects template to record the above transactions.

Transfer Pricing with Idle Capacity

Oriole, Inc., owns a number of food service companies. Two divisions are the Coffee Division and the Donut Shop Division. The Coffee Division purchases and roasts coffee beans for sale to supermarkets and specialty shops. The Donut Shop Division operates a chain of donut shops where the donuts are made on the premises. Coffee is an important item for sale along with the donuts and, to date, has been purchased from the Coffee Division. Company policy permits each manager the freedom to decide whether or not to buy or sell internally. Each divisional manager is evaluated on the basis of return on investment and residual income.

Recently, an outside supplier has offered to sell coffee beans, roasted and ground, to the Donut Shop Division for $4.30 per pound. Since the current price paid to the Coffee Division is $4.75 per pound, Ashleigh Tremont, the manager of the Donut Shop Division, was interested in the offer. However, before making the decision to switch to the outside supplier, she decided to approach Santigui Melendez, manager of the Coffee Division, to see if he wanted to offer an even better price. If not, then Ashleigh would buy from the outside supplier.

Upon receiving the information from Ashleigh about the outside offer, Santigui gathered the following information about the coffee:

^*Fixed overhead is based on $1,530,000 / 1,000,000 pounds.

Required:

1. Now, assume that the Coffee Division is currently selling 950,000 pounds. If no units are sold internally, total coffee sales will drop to 850,000 pounds. Suppose that Santigui refuses to lower the transfer price from $4.75 and the Donut Division purchases from the external supplier. Compute the effect on each division's profits and on the profits of the firm as a whole. Enter an increase in profits as a positive amount, and enter a decrease as a negative amount.

2. Refer to Requirement 1. What are the minimum and maximum transfer prices? Round your answers to the nearest cent.

Suppose that the transfer price is set at the maximum price less $1. Will the two divisions accept this transfer price?  

Compute the effect on the firm's profits and on each division's profits.

3. Suppose that the Coffee Division has operating assets of $2,000,000. Assume that the Coffee Division sells 850,000 pounds to outsiders and 100,000 pounds to the Donut Division at a price of $4.75 per pound. What is divisional ROI based on this situation? Enter your answer as a percentage, rounded to two decimal places. For example, the decimal value .03827 would be entered as "3.83" percent.
-----%

Now, refer to Requirement 2. What will divisional ROI be if the transfer price of the maximum price less $1 is implemented?
----- %

Each response should be about one paragraph long, describing the justification for your decision.

On October 1st, a customer orders a Roomba 980 robotic vacuum from iRobot. The product has a 14 day trial period, which begins on the date of delivery. If the customer does not want the product at the end of the trial period, he must return the product in its original packaging, in good condition, within 21 days of the delivery date, to receive a full refund. The Roomba 980 is delivered on October 5th. Are the revenue recognition criteria met or not met? Why or why not?

J. Lo’s Clothiers has forecast credit sales for the fourth quarter of the year:

Experience has shown that 35 percent of sales are collected in the month of sale, 65 percent are collected in the following month, and 0 percent are never collected.

Prepare a schedule of cash receipts for J. Lo’s Clothiers covering the fourth quarter (October through December).

Exercise 8-3 (Algo) Direct Materials Budget [LO8-4]

Two grams of musk oil are required for each bottle of Mink Caress, a very popular perfume made by a small company in western Siberia. The cost of the musk oil is $2.10 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3:

The inventory of musk oil at the end of a quarter must be equal to 20% of the following quarter’s production needs. Some 33,600 grams of musk oil will be on hand to start the first quarter of Year 2.

Required:

Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2.

1. Geraldine Price, the manager of Household Products has asked Doreen Spencer to analyze the possibility of introducing a new product WS -500.   The product will have a useful life of six years after which the product will be replaced.

WS-500 will require special-purpose equipment costing $1,200,000. The useful life of the equipment is six years and an estimated terminal disposal price of $600,000.   The equipment qualifies for 25% CCA rate.

The product will be produced in a plant which is currently being leased to another business for $60,000 per year. The lease has 6 years remaining. The lease contains a cancellation clause whereby the landlord can obtain immediate possession of the premises upon payment of $42,000 cash.

The old plant has a book value of $300,000 and is being amortized for accounting purposes on a straight-line basis at $30,000 annually.

Certain nonrecurring market research studies and sales promotion activities will amount to a cost of $375,000 at the end of year 1. The entire amount is deductible in full for income tax purposes in the year expenditure.

Additions to working capital will require $260,000 at the outset and an additional $240,000 at the end of two years.

Net cash inflow from operations before amortization and income taxes is expected to be $480,000 in years 1 and 2, $720,000 in years 3 to 5, and $400,000 in year 6.

Tax rate is 25% and cost of capital is 16%

Required:

1. Recommend if Household Products recommend launching WS-500?

Home Depot sells a washer and dryer for $1,600 on April 1st. After successful completion of a credit check, the customer makes a down payment of $280 cash and agrees to pay an additional $110 per month for the next 12 months. The washer and dryer are delivered and installed on April 6th. Are the revenue recognition criteria met or not met? Why or why not?

Each response should be about one paragraph long, describing the justification for your decision.

Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The following table provides data concerning the company’s costs: Fixed Cost per Month Cost per Car Washed Cleaning supplies $ 0.40 Electricity $ 1,300 $ 0.07 Maintenance $ 0.15 Wages and salaries $ 4,300 $ 0.20 Depreciation $ 8,100 Rent $ 1,800 Administrative expenses $ 1,600 $ 0.03 For example, electricity costs are $1,300 per month plus $0.07 per car washed. The company expects to wash 8,200 cars in August and to collect an average of $6.20 per car washed. The actual operating results for August appear below.

he actual operating results for August appear below.

Required:

Prepare a flexible budget performance report that shows the company’s revenue and spending variances and activity 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.)

If a partner is contributing attributes to a partnership such as established clientele or a particular expertise, what methods can be used to record the contribution? Why did you choose this method? Provide examples of the journal entries you would use. Comment on your classmates choices.

stanmore Corporation makes a special purpose machine d4h using the textile industry stanmore has designed the d4h machine for 2017 to be distinct from its competitors it has been generally regarded as a superior machine stanmore presents the following data for 2016 and 2017

Is Stanmore's strategy one of product differentiation or cost leadership? explain briefly

What is the independence standard? Why is it important that users perceive auditors to be independent? Can an auditor be independent in fact, but not in appearance? Explain.

Scrappers Supplies tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.

TIP: Although the purchases and sales are listed in chronological order, Scrappers determines the cost of goods sold after all of the purchases have occurred.

Required:

1. Compute the cost of goods available for sale, cost of ending inventory, and cost of goods sold at December 31 under each of the following inventory costing methods: (Round "Cost per Unit" to 2 decimal places.)
   a. Last-in, first-out.
   b. Weighted average cost.
   c. First-in, first-out.
   d. Specific identification, assuming that the April 1 sale was selected one-fifth from the beginning inventory and four-fifths from the purchase of March 2. Assume that the sale of August 1 was selected from the purchase of June 30.
2. Of the four methods, which will result in the highest gross profit? Which will result in the lowest income taxes?

d. CCompute the cost of goods available for sale, cost of ending inventory, and cost of goods sold at December 31 using the Specific identification method. Assume that the April 1 sale was selected one-fifth from the beginning inventory and four-fifths from the purchase of March 2. Assume that the sale of August 1 was selected from the purchase of June 30. (Round "Cost per Unit" anwers to 2 decimal places.)

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Of the four methods, which will result in the highest gross profit?

Which will result in the lowest income taxes?

CarryAll Company produces briefcases from leather, fabric, and synthetic materials in a single
production department. The basic product is a standard briefcase made from leather and lined with
fabric. CarryAll has a good reputation in the market because the standard briefcase is a high-quality
item that has been produced for many years.
Last year, the company decided to expand its product line and produce specialty briefcases
for special orders. These briefcases differ from the standard in that they vary in size, contain both
leather and synthetic materials, and are imprinted with the buyer’s logo (the standard briefcase
is simply imprinted with the CarryAll name in small letters). The decision to use some synthetic
materials in the briefcase was made to hold down the materials cost. To reduce the labor costs per
unit, most of the cutting and stitching on the specialty briefcases is done by automated machines,
which are used to a much lesser degree in the production of the standard briefcases. Because of
these changes in the design and production of the specialty briefcases, CarryAll management
believed that they would cost less to produce than the standard briefcases. However, because they
are specialty items, they were priced slightly higher; standards are priced at $30 and specialty
briefcases at $32.
After reviewing last month’s results of operations, CarryAll’s president became concerned
about the profitability of the two product lines because the standard briefcase showed a loss while
the specialty briefcase showed a greater profit margin than expected. The president is wondering
whether the company should drop the standard briefcase and focus entirely on specialty items.
Units and cost data for last month’s operations as reported to the president are as follows:

Standard Specialty Units produced 10,000 2,500 Direct materials Leather (1 sq. yd. ×$15.00; ½ sq. yd. ×$15.00) $15.00 $7.50 Fabric (1 sq. yd. ×$5.00; 1 sq. yd. × $5.00) $ 5.00 $5.00 Synthetic $5.00 Total materials $20.00 $17.50 Direct labor (½ hr. × $12.00, ¼ hr. × $12.00) $6.00 $3.00 Manufacturing Overhead (1/2 hr. × $8.98, ¼ hr. × $8.98) $4.49 $2.25 Cost per unit $30.49 $22.75
Factory overhead is applied on the basis of direct labor hours. The rate of $8.98 per direct labor
hour was calculated by dividing the total overhead ($50,500) by the direct labor hours (5,625). As
shown in the table, the cost of a standard briefcase is $0.49 higher than its $30 sales price; the
specialty briefcase has a cost of only $22.75, for a gross profit per unit of $9.25. The problem with
these costs is that they do not accurately reflect the activities involved in manufacturing each
product. Determining the costs using ABC should provide better product costing data to help gauge
the actual profitability of each product line.
The manufacturing overhead costs must be analyzed to determine the activities driving the
costs. Assume that the following costs and cost drivers have been identified:
• The Purchasing Department’s cost is $6,000. The major activity driving these costs is the number
of purchase orders processed. During the month, the Purchasing Department prepared the
following number of purchase orders for the materials indicated:
Leather 20 Fabric 30 Synthetic material 50
• The cost of receiving and inspecting materials is $7,500. These costs are driven by the number
of deliveries. During the month, the following number of deliveries were made:
Leather 30 Fabric 40 Synthetic material 80
• Production line setup cost is $10,000. Setup activities involve changing the machines to produce
the different types of briefcases. Each setup for production of the standard briefcases requires one
hour; each setup for specialty briefcases requires two hours. Standard briefcases are produced in
batches of 200, and specialty briefcases are produced in batches of 25. During the last month, there
were 50 setups for the standard item and 100 setups for the specialty item.
• The cost of inspecting finished goods is $8,000. All briefcases are inspected to ensure that quality
standards are met. However, the final inspection of standard briefcases takes very little time
because the employees identify and correct quality problems as they do the hand cutting and
stitching. A survey of the personnel responsible for inspecting the final products showed that 150
hours were spent on standard briefcases and 250 hours on specialty briefcases during the month.
• Equipment-related costs are $6,000. Equipment-related costs include repairs, depreciation, and
utilities. Management has determined that a logical basis for assigning these costs to products is
machine hours. A standard briefcase requires 1/2 hour of machine time, and a specialty briefcase
requires two hours. Thus, during the last month, 5,000 hours of machine time relate to the standard
line and 5,000 hours relate to the specialty line.
• Plant-related costs are $13,000. These costs include property taxes, insurance, administration,
and others. For the purpose of determining average unit costs, they are to be assigned to products
using machine hour

Question:  Reevaluate the president’s concern about the profitability of the two product lines.