CHAPTER 21 (8.)

Portions of the financial statements for Myriad Products are provided below.

Required:
Prepare the cash flows from operating activities section of the statement of cash flows for Myriad Products Company using the direct method.

What is leverage and what are two major types of leverage? Define each.

Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption costing income statement for the most recent period is shown:

Hi-Tek produced and sold 60,000 units of B300 at a price of $20 per unit and 12,800 units of T500 at a price of $39 per unit. The company’s traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below:

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $52,000 and $109,000 of the company’s advertising expenses could be directly traced to B300 and T500, respectively. The remainder of the selling and administrative expenses was organization-sustaining in nature. The ABC team also distributed the company’s manufacturing overhead to four activities as shown below:

Required:

1. Compute the product margins for the B300 and T500 under the company’s traditional costing system.

2. Compute the product margins for B300 and T500 under the activity-based costing system.

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

Compute the product margins for the B300 and T500 under the company’s traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)

Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.)

Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.)

Required

Using the weighted-average method, calculate the following:

1-a. Costs per equivalent unit. (Round your answers to 4 decimal places.)

1-b. Cost of goods completed and transferred out. (Round "Cost per EU" to 4 decimal places. Round final answer to nearest whole dollars.)

1-c. Costs remaining in the Work-in-Process Inventory account. (Round "Cost per EU" to 4 decimal places. Do not round other intermediate calculations. Round final answer to nearest whole dollars.)

2. Assume that you are the company’s controller. The production department’s June equivalent unit cost is higher than expected. If the manager of the first department asks you to do him a favor by increasing the ending inventory completion percentage from 20 to 40% to lower the unit costs, how much would unit cost be affected by this request? (Round your answer to 4 decimal places.)

One of your clients in India, a government employee, would like to reduce his taxes . He is trying to decide whether he should contribute 50,000 to a Retirement Savings Plan this year. He has life insurance policy to which he pays a monthly premium of 8500.

a. What advice would you give to your client regarding Retirement Savings Plan contribution? Explain your conclusion.

b. What are the other alternative methods through he can plan his income and tax.

Choctaw Co. completed the following transactions in Year 1, the first year of operation.

1. Issued 27,000 shares of $12 par common stock for $12 per share.
2. Issued 3,700 shares of $20 stated value preferred stock for $20 per share.
3. Purchased 1,700 shares of common stock as treasury stock for $14 per share.
4. Declared a $2,700 cash dividend on preferred stock.
5. Sold 1,100 shares of treasury stock for $16 per share.
6. Paid $2,700 cash for the preferred dividend declared in Event 4.
7. Earned cash revenues of $92,000 and incurred cash expenses of $48,000.
8. Appropriated $8,700 of retained earnings.

Required

a. Organize the transaction in accounts under an accounting equation.
b. Prepare a balance sheet as of December 31, Year 1.

• Required A

Organize the transaction in accounts under an accounting equation. (Enter any decreases to account balances with a minus sign. Not all cells in the "Accounts Titles for Retained Earnings" column may require an input - leave cells blank if there is no corresponding input needed.)

Required B

Indiana Co. began a construction project in 2021 with a contract price of $161 million to be received when the project is completed in 2023. During 2021, Indiana incurred $37 million of costs and estimates an additional $81 million of costs to complete the project. Indiana recognizes revenue over time and for this project recognizes revenue over time according to the percentage of the project that has been completed.

In 2022, Indiana incurred additional costs of $57 million and estimated an additional $40 million in costs to complete the project. Indiana (Do not round your percentage calculated):

A. Recognized $25.50 million gross profit on the project in 2022.

B. Recognized $6.00 million gross profit on the project in 2022.

C. Recognized $27.00 million gross profit on the project in 2022.

D. Recognized $5.46 million gross profit on the project in 2022.

Equipment acquired on January 8 at a cost of $212,000 has an estimated useful life of 15 years, has an estimated residual value of $14,000, and is depreciated by the straight-line method.

a. What was the book value of the equipment at December 31 the end of the fifth year?

Assume that the equipment was sold on April 1 of the sixth year for $105,800.

1. Journalize the entry to record depreciation for the three months until the sale date. If an amount box does not require an entry, leave it blank.

Depreciation expense-equipment

Accumulated depreciation-equipment

2. Journalize the entry to record the sale of the equipment. If an amount box does not require an entry, leave it blank.

Cash

Accumulated Depreciation-equipment

Loss on Sale of Equipment

Equipment

Identify at least three risks that auditors need to consider for companies that process Web-based sales transactions, including credit card payments. For each risk identified, develop a mitigation risk strategy. Provide specific examples.

Golden Corp., a merchandiser, recently completed its 2017 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, (5) Other Expenses are all cash expenses, and (6) any change in Income Taxes Payable reflects the accrual and cash payment of taxes. The company’s balance sheets and income statement follow.

Additional Information on Year 2017 Transactions

1. Purchased equipment for $61,400 cash.
2. Issued 13,500 shares of common stock for $5 cash per share.
3. Declared and paid $104,000 in cash dividends.

Required:
Prepare a complete statement of cash flows; report its cash flows from operating activities according to the direct method. (Amounts to be deducted should be indicated with a minus sign.)

Explain why a supervisor needs to understand their company's financial statements. What information can be gathered from each financial statement?

What audit procedures would you use for the measurement and completeness of depreciation expense objective?