2) The Central Valley Company is a merchandising firm that sells a single product. The company's revenues and expenses for the last three months are given below:

Required:

a. Determine which expenses are mixed and, by use of the high-low method, separate each mixed expense into its variable and fixed components. State the cost formula for each mixed expense.

b. Compute the company's total contribution margin for May.

Give an example of an adjusting journal entry for each of the following transactions. Provide three correct responses:

Equal growth of an expense and a liability:

Earning of revenue that was previously recorded as unearned revenue:

Equal growth of an asset and revenue:

Increase in an expense and decrease in an asset:

On January 1, Year 1, Webb Construction Company overhauled four cranes, resulting in a slight increase in the life of the cranes. Such overhauls occur regularly at two-year intervals and have been treated as a maintenance expense in the past. Management is considering whether to capitalize this year’s $28,420 cash cost in the Cranes asset account or to expense it as a maintenance expense. Assume that the cranes have a remaining useful life of two years and no expected salvage value. Assume straight-line depreciation.

Required
a. Determine the amount of additional depreciation expense Webb would recognize in Year 1 and Year 2 if the cost were capitalized in the Cranes account.
b. Determine the amount of expense Webb would recognize in Year 1 and Year 2 if the cost were recognized as maintenance expense.
c. Determine the effect of the overhaul on cash flow from operating activities for Year 1 and Year 2 if the cost were capitalized and expensed through depreciation charges.
d. Determine the effect of the overhaul on cash flow from operating activities for Year 1 and Year 2 if the cost were recognized as maintenance expense.

3. What is the relationship between cash flows from operations and Income for the year of the statement?

4. Explain the difference between the direct method and the indirect method of disclosing cash flows from operations.

5. Do you believe that cash inflows and outflows associated with nonoperating items such as interest expense, interest revenue, and dividend revenue, should be separated from operating cash flows? Explain.

creating a journal

v

he following were selected from among the transactions completed by Babcock Company during November of the current year:

Rutkey Collectibles is a small toy company that manufactures and sells metal replicas of classic cars. Each car sells for $3.30 The cost of each unit follows:

One of Rutkey's regular customers asked the company to fill a special order of 800 units at a selling price of $2.30 per unit. Rutkey's can fill the order using existing capacity without affecting total fixed costs for the month. However, Rutkey's manager was concerned about selling at a price below the $2.80 cost per unit and has asked for your advice.

Required:

a. Prepare a schedule to show the impact of providing the special order of 800 units on Rutkey's profits in addition to the regular production and sales of 17,900 units per month.

b. Based solely on the data given, what is the lowest price per unit at which the model cars could be sold for the special order without reducing Rutkey's profits?

c. If Rutkey Collectibles company was operating at capacity, what would happen to operating profit if the special order was accepted?

Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been experiencing financial difficulty for some time. The company’s contribution format income statement for the most recent month is given below: Sales (13,200 units × $20 per unit) $ 264,000 Variable expenses 158,400 Contribution margin 105,600 Fixed expenses 117,600 Net operating loss $ (12,000 )

Required: Please help with questions 4 and 5 ONLY.

1. Compute the company’s CM ratio and its break-even point in unit sales and dollar sales.

2. The president believes that a $6,600 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $87,000 increase in monthly sales. If the president is right, what will be the increase (decrease) in the company’s monthly net operating income?

3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $37,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating income (loss)?

4. Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would grow sales. The new package would increase packaging costs by 0.60 cents per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,300?

5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $54,000 each month. a. Compute the new CM ratio and the new break-even point in unit sales and dollar sales. b. Assume that the company expects to sell 20,500 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are. (Show data on a per unit and percentage basis, as well as in total, for each alternative.) c. Would you recommend that the company automate its operations (Assuming that the company expects to sell 20,500)?

Lubricants, Inc., produces a special kind of grease that is widely used by race car drivers. The grease is produced in two processing departments—Refining and Blending. Raw materials are introduced at various points in the Refining Department.

The following incomplete Work in Process account is available for the Refining Department for March:

The March 1 work in process inventory in the Refining Department consists of the following elements: materials, $8,700; direct labor, $4,300; and overhead, $21,700.

Costs incurred during March in the Blending Department were: materials used, $46,000; direct labor, $17,000; and overhead cost applied to production, $103,000.

Required:

1. Prepare journal entries to record the costs incurred in both the Refining Department and Blending Department during March. Key your entries to the items (a) through (g) below.

1. Raw materials used in production.
2. Direct labor costs incurred.
3. Manufacturing overhead costs incurred for the entire factory, $646,000. (Credit Accounts Payable.)
4. Manufacturing overhead was applied to production using a predetermined overhead rate.
5. Units that were complete with respect to processing in the Refining Department were transferred to the Blending Department, $672,000.
6. Units that were complete with respect to processing in the Blending Department were transferred to Finished Goods, $800,000.
7. Completed units were sold on account, $1,430,000. The Cost of Goods Sold was $630,000.

2. Post the journal entries from (1) above to T-accounts. The following account balances existed at the beginning of March. (The beginning balance in the Refining Department’s Work in Process is given in the T-account shown above.)

The Square Foot Grill, Inc. issued $187,000 of 10-year, 5 percent bonds on January 1, 2018, at 102. interest is payable in cash annually on December 31. The straight-line method is used for amortization.

Required

1. Use a financial statements model like the one shown below to demonstrate how (1) the January 1, 2018, bond issue and (2) the December 31, 2018, recognition of interest expense, including the amortization of the premium and the cash payment, affects the company’s financial statements. Use + for increase, − for decrease, and if there is no effect, leave the cell blank.

2. Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31, 2018.

3. Determine the amount of interest expense reported on the 2018 income statement.

4. Determine the carrying value of the bond liability as of December 31, 2019.

5. Determine the amount of interest expense reported on the 2019 income statement.

Periodic Inventory by Three Methods; Cost of Merchandise Sold The units of an item available for sale during the year were as follows: Jan. 1 Inventory 50 units @ $90 Mar. 10 Purchase 50 units @ $100 Aug. 30 Purchase 10 units @ $104 Dec. 12 Purchase 90 units @ $110 There are 60 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost and the cost of merchandise sold by three methods. Round interim calculations to one decimal and final answers to the nearest whole dollar. Cost of Merchandise Inventory and Cost of Merchandise Sold Inventory Method Merchandise Inventory Merchandise Sold First-in, first-out (FIFO) $ $ Last-in, first-out (LIFO) Weighted average cost

The Foundational 15 [LO6-1, LO6-2, LO6-3, LO6-4, LO6-5]

Diego Company manufactures one product that is sold for $80 per unit in two geographic regions—the East and West regions.

Variable costs per unit: Manufacturing: Direct materials $ 24

Direct labor $ 14

Variable manufacturing overhead $ 2

Fixed costs per year: Fixed manufacturing overhead $ 800,000

Fixed selling and administrative expense $ 496,000

The company sold 25,000 units in the East region and 10,000 units in the West region. It determined that $250,000 of its fixed selling and administrative expense is traceable to the West region, $150,000 is traceable to the East region, and the remaining $96,000 is a common fixed expense. The company will continue to incur the total amount of its fixed manufacturing overhead costs as long as it continues to produce any amount of its only product.

11. What would have been the company’s absorption costing net operating income (loss) if it had produced and sold 35,000 units? You do not need to perform any calculations to answer this question.

13. Prepare a contribution format segmented income statement that includes a Total column and columns for the East and West regions.

14. Diego is considering eliminating the West region because an internally generated report suggests the region’s total gross margin in the first year of operations was $50,000 less than its traceable fixed selling and administrative expenses. Diego believes that if it drops the West region, the East region's sales will grow by 5% in Year 2. Using the contribution approach for analyzing segment profitability and assuming all else remains constant in Year 2, what would be the profit impact of dropping the West region in Year 2?

15. Assume the West region invests $30,000 in a new advertising campaign in Year 2 that increases its unit sales by 20%. If all else remains constant, what would be the profit impact of pursuing the advertising campaign?

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 800,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of this year was $18. All of the company’s sales are on account.

Required:

Compute the following financial data for this year:

1. Accounts receivable turnover. (Assume that all sales are on account.) (Round your answer to 2 decimal places.)

2. Average collection period. (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.)

3. Inventory turnover. (Round your answer to 2 decimal places.)

4. Average sale period. (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.)

5. Operating cycle. (Round your intermediate calculations and final answer to 2 decimal places.)

6. Total asset turnover. (Round your answer to 2 decimal places.)

Create a Fictitious balance sheet and income statement.

Required information

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

Laker Company reported the following January purchases and sales data for its only product.

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 410 units, where 380 are from the January 30 purchase, 5 are from the January 20 purchase, and 25 are from beginning inventory.

3. Determine the cost assigned to ending inventory and to cost of goods sold using FIFO.

The Terrence Co. manufactures two products, Baubles and Trinkets. The following are projections for the coming year:

How many Baubles will be sold at the break-even point, assuming that the facilities are jointly used with the sales mix remaining constant?