The following are two independent situations.

Situation 1

Whoo Cosmetics acquired 12% of the 200,000 shares of common stock of Loreal Fashion at a total cost of $15 per share on Oct. 18, 2018. On Oct. 30, Loreal declared and paid $60,000 cash dividend to all stockholders. On December 31, Loreal reported net income of $122,000 for the year. At December 31, the market price of Loreal Fashion was $12 per share.

Situation 2

Peach Republic Group obtained significant influence over Old Army Corporation by buying 35% of Old Army’s 40,000 outstanding shares of common stock at a total cost of $16 per share on January 1, 2018. On June 15, Old Army declared and paid cash dividends of $58,000. On December 31, Old Army reported a net income of $100,000 for the year.

Prepare all the necessary journal entries in 2018 for Whoo Cosmetics and Peach Republic Group.

On December 1, 2018, Folks Wagon Company adopted a stock-option plan that granted options to key executives to purchase 50,000 shares of the company’s $10 par value common stock. The options were granted on January 1, 2019, and were exercisable 3 years after the date of grant if the grantee was still an employee of the company. The options expired 5 years from the date of grant. The option price was set at $35, and the fair value option-pricing model determines the total compensation expense to be $450,000.

All of the options were exercised during the year 2022: 20,000 on February 23 when the market price was $46, and 30,000 on August 8 when the market price was $85 a share.

a. Prepare the journal entries relating to the stock option plan for the years 2019, 2020, and 2021. Assume that the employee performs services equally in 2019, 2020, and 2021.

b. Prepare the journal entries that record the two events of exercising the options in 2022.

On January 5, 2018, Parker Corporation received a charter granting the right to issue 6,000 shares of $100 par value, 7% cumulative and nonparticipating preferred stock, and 60,000 shares of $10 par value common stock. It then completed these transactions:

Jan. 15th. Issued 40,000 shares of common stock at $18 per share.

Feb. 22nd. Issued to Martinez Corp. 3,000 shares of preferred stock for the following assets: equipment with a fair value of $30,000; a factory building with a fair value of $60,000; and land with an appraised value of $170,000.

July 23rd. Purchased 2,000 shares of common stock at $20 per share.

Oct. 10th. Sold the 2,000 treasury shares at $15 per share.

Dec. 31st. Declared a $0.30 per share cash dividend on the common stock and declared the preferred dividend.

Prepare all the necessary journal entries for the transactions listed above for Parker Corporation.

The comparative balance sheet of Whitman Co. at December 31, 20Y2 and 20Y1, is as follows:

The noncurrent asset, noncurrent liability, and stockholders’ equity accounts for 20Y2 are as follows:

ACCOUNT Land

ACCOUNT Buildings

ACCOUNT Accumulated Depreciation––Buildings

ACCOUNT Equipment

ACCOUNT Accumulated Depreciation ––Equipment

ACCOUNT Bonds Payable

ACCOUNT Common Stock $25 par

ACCOUNT Paid-In Capital in Excess of Par––Common Stock

ACCOUNT Retained Earnings

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Be sure to complete the heading of the statement. Use the minus sign to indicate cash outflows.

Pittman Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own; rather, it relies completely on independent sales agents to market its products. These agents are paid a sales commission of 15% for all items sold.

Barbara Cheney, Pittman’s controller, has just prepared the company’s budgeted income statement for next year as follows:

*Primarily depreciation on storage facilities.

As Barbara handed the statement to Karl Vecci, Pittman’s president, she commented, “I went ahead and used the agents’ 15% commission rate in completing these statements, but we’ve just learned that they refuse to handle our products next year unless we increase the commission rate to 20%.”

“That’s the last straw,” Karl replied angrily. “Those agents have been demanding more and more, and this time they’ve gone too far. How can they possibly defend a 20% commission rate?”

“They claim that after paying for advertising, travel, and the other costs of promotion, there’s nothing left over for profit,” replied Barbara.

“I say it’s just plain robbery,” retorted Karl. “And I also say it’s time we dumped those guys and got our own sales force. Can you get your people to work up some cost figures for us to look at?”

“We’ve already worked them up,” said Barbara. “Several companies we know about pay a 7.5% commission to their own salespeople, along with a small salary. Of course, we would have to handle all promotion costs, too. We figure our fixed expenses would increase by $2,550,000 per year, but that would be more than offset by the $3,400,000 (20% × $17,000,000) that we would avoid on agents’ commissions.”

The breakdown of the $2,550,000 cost follows:

“Super,” replied Karl. “And I noticed that the $2,550,000 equals what we’re paying the agents under the old 15% commission rate.”

“It’s even better than that,” explained Barbara. “We can actually save $78,200 a year because that’s what we’re paying our auditors to check out the agents’ reports. So our overall administrative expenses would be less.”

“Pull all of these numbers together and we’ll show them to the executive committee tomorrow,” said Karl. “With the approval of the committee, we can move on the matter immediately.”

Required:

1. Compute Pittman Company’s break-even point in dollar sales for next year assuming:

a. The agents’ commission rate remains unchanged at 15%.

b. The agents’ commission rate is increased to 20%.

c. The company employs its own sales force.

2. Assume that Pittman Company decides to continue selling through agents and pays the 20% commission rate. Determine the dollar sales that would be required to generate the same net income as contained in the budgeted income statement for next year.

3. Determine the dollar sales at which net income would be equal regardless of whether Pittman Company sells through agents (at a 20% commission rate) or employs its own sales force.

4. Compute the degree of operating leverage that the company would expect to have at the end of next year assuming:

a. The agents’ commission rate remains unchanged at 15%.

b. The agents’ commission rate is increased to 20%.

c. The company employs its own sales force.

Use income before income taxes in your operating leverage computation.

Determine the dollar sales at which net income would be equal regardless of whether Pittman Company sells through agents (at a 20% commission rate) or employs its own sales force. (Do not round intermediate calculations.)

Compute the degree of operating leverage that the company would expect to have at the end of next year assuming: (Use income before income taxes in your operating leverage computation.) (Round your answers to 2 decimal places.)

During the month, a company enters into the following transactions:

• Borrows $8,750 of cash from the bank by signing a formal agreement to repay the loan in 2 years.
• Buys $6,900 of new equipment on account.
• Pays off $4,900 of accounts payable.
• Pays off $2,450 of notes payable.

Required:

1. Show the effect of these transactions on the basic accounting equation.

2. Prepare the journal entries that would be used to record the transactions.

You are invited to design a vehicle identification number (VIN) system for the vehicles sold in the U.S.

The VIN number should reflect: a. the vehicle’s make, model, and model year; b. the country, state/province, and assembly plant where the vehicle is built; c. the sequence number of the vehicle.

Please EXPLAIN your design of this VIN number system with appropriate examples.

On May 31, 2014, Franklin Company purchased a machine for $205,000. The machine has useful life 5 years or 100,000 units with $5,000 salvage value. Franklin uses 14,000 units in 2014 and 38,000 units in 2015. Compute depreciation expense for 2014 and 2015 and prepare the necessary JOURNAL ENTRIES at year end December 31 using the following methods:

1.   Straight-line

2.   Units of activity

3.   Double-Declining Balance

Selected financial information for the Adelphi Company for the fiscal years ended December 31, 2018 and 2017 follows. Prepare a cash flow statement using the indirect method. Properly title the statement.

Patrick Inc. makes industrial solvents. In the first 4 months of the coming year, Patrick expects the following unit sales:

Patrick's policy is to have 23% of next month's sales in ending inventory. On January 1, it is expected that there will be 4,500 drums of solvent on hand.

Required:

Prepare a production budget for the first quarter of the year. Show the number of drums that should be produced each month as well as for the quarter in total. If required, round your answers to the nearest whole unit.

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,050,000. The project began in 2018 and was completed in 2019. Data relating to the contract are summarized below:

20182019

Costs incurred during the year$304,000 $1,595,000

Estimated costs to complete as of 12/31 1,216,000  0

Billings during the year 385,000  1,630,000

Cash collections during the year 252,000  1,755,000

Required:
1. Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming Nortel recognizes revenue over time according to percentage of completion.
2. Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming this project does not qualify for revenue recognition over time.
3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming Nortel recognizes revenue over time according to percentage of completion.
4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming this project does not qualify for revenue recognition over time.

• Required 1
• Required 2
• Required 3
• Required 4

Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming Nortel recognizes revenue over time according to percentage of completion. (Loss amounts should be indicated with a minus sign. Use percentages as calculated and rounded in the table below to arrive at your final answer.)

1. Green, Inc., a C corporation, distributes a tract of land held as an investment (FMV = $500,000, basis = $220,000) and its mortgage of $550,000 to Susan at the end of the year. Green, Inc. has a current E&P of $190,000 for the year, and started the year an accumulated E & P of $60,000. Green’s marginal tax rate is 21%. Susan has an individual marginal tax rate of 33% and both a dividend and a long-term capital gains tax rate of 15%. Susan owns 200 of Green’s 1,000 shares outstanding and her basis in her Green stock is $20,000. Susan has held her stock for two years. The distribution does not qualify as a stock redemption, but would be classified as a qualified dividend.  

1. What is Green’s recognized gain on the distribution?            __________________

2. What is the increase in Green’s tax liability as a result of the distribution?

__________________

3. What is the amount of Susan’s distribution?                         __________________

4. How much of the distribution is classified as a dividend?            __________________

5. How much of the distribution is classified as a return of capital?                                                                                                                             __________________

6. How much of the distribution is taxed as a capital gain?            __________________

7. What is the increase in Susan’s tax liability as a result of the distribution?                                                                                                               __________________

8. What is Green’s ending E&P (after the distribution)?            __________________

1. What is Susan’s basis in the land?                                         __________________

10. What is Susan’s ending basis in her Green stock?                 __________________

1. Statement of Cost of Goods Manufactured and Income Statement for a Manufacturing Company

   The following information is available for Shanika Company for 20Y6:

   Inventories	January 1	December 31
   Materials	$212,250	$267,440
   Work in process	382,050	363,720
   Finished goods	367,190	371,740
   Advertising expense		$181,590
   Depreciation expense-office equipment		25,670
   Depreciation expense-factory equipment		34,500
   Direct labor		411,860
   Heat, light, and power-factory		13,640
   Indirect labor		48,140
   Materials purchased		403,830
   Office salaries expense		140,940
   Property taxes-factory		11,230
   Property taxes-headquarters building		23,270
   Rent expense-factory		18,990
   Sales		1,890,800
   Sales salaries expense		232,140
   Supplies-factory		9,360
   Miscellaneous costs-factory		5,880

   Required:

   1. Prepare the statement of cost of goods manufactured.

   Shanika Company
   Statement of Cost of Goods Manufactured
   For the Year Ended December 31, 20Y6
   			$fill in the blank 7e5f500ad068063_2
   Direct materials:
   	$fill in the blank 7e5f500ad068063_4
   	fill in the blank 7e5f500ad068063_6
   	$fill in the blank 7e5f500ad068063_8
   	fill in the blank 7e5f500ad068063_10
   		$fill in the blank 7e5f500ad068063_12
   		fill in the blank 7e5f500ad068063_14
   Factory overhead:
   	$fill in the blank 7e5f500ad068063_16
   	fill in the blank 7e5f500ad068063_18
   	fill in the blank 7e5f500ad068063_20
   	fill in the blank 7e5f500ad068063_22
   	fill in the blank 7e5f500ad068063_24
   	fill in the blank 7e5f500ad068063_26
   	fill in the blank 7e5f500ad068063_28
   Total factory overhead		fill in the blank 7e5f500ad068063_29
   Total manufacturing costs incurred			fill in the blank 7e5f500ad068063_30
   Total manufacturing costs			$fill in the blank 7e5f500ad068063_31
   			fill in the blank 7e5f500ad068063_33
   Cost of goods manufactured			$fill in the blank 7e5f500ad068063_34

   2. Prepare the income statement.

   Shanika Company
   Income Statement
   For the Year Ended December 31, 20Y6
   			$fill in the blank 16f120f76026010_2
   Cost of goods sold:
   		$fill in the blank 16f120f76026010_4
   		fill in the blank 16f120f76026010_6
   		$fill in the blank 16f120f76026010_8
   		fill in the blank 16f120f76026010_10
   			fill in the blank 16f120f76026010_12
   			$fill in the blank 16f120f76026010_14
   Operating expenses:
   Administrative expenses:
   	$fill in the blank 16f120f76026010_16
   	fill in the blank 16f120f76026010_18
   	fill in the blank 16f120f76026010_20	$fill in the blank 16f120f76026010_21
   Selling expenses:
   	$fill in the blank 16f120f76026010_23
   	fill in the blank 16f120f76026010_25	fill in the blank 16f120f76026010_26
   Total operating expenses			fill in the blank 16f120f76026010_27
   			$fill in the blank 16f120f76026010_29

The treasurer of Calico Dreams Company has accumulated the following budget information for the first two months of the coming fiscal year:

The company expects to sell about 35% of its merchandise for cash. Of sales on account, 80% are collected in full in the month of the sale, and the remainder in the month following the sale. One-fourth of the manufacturing costs are paid in the month in which they are incurred, and the other three-fourths in the following month. Depreciation, insurance, and property taxes represent $6,400 of the monthly selling and administrative expenses. Insurance is paid in February, and property taxes are paid yearly in September. A $40,000 installment on income taxes is to be paid in April. Of the remainder of the selling and administrative expenses, one-half are to be paid in the month in which they are incurred and the balance in the following month. Capital additions of $250,000 are paid in March.

Current assets as of March 1 are composed of cash of $45,000 and accounts receivable of $51,000. Current liabilities as of March 1 are accounts payable of $121,500 ($102,000 for materials purchases and $19,500 for operating expenses). Management desires to maintain a minimum cash balance of $25,000.

Questions: (please enter answers in the correct order)

a. What are the total collections of accounts receivables for March?

b. What are the total cash receipts for April?

c. What are the total manufacturing costs for March?

d. What is the cash balance at the end of April?

e. April excess/deficiency at the end of the month?

This year, Paula and Simon (married filing jointly) estimate that their tax liability will be $230,000. Last year, their total tax liability was $190,000. They estimate that their tax withholding from their employers will be $198,000.

a. Are Paula and Simon required to increase their withholding or make estimated tax payments this year to avoid the underpayment penalty?

yes

no

b. By how much, if any. must Paula and Simon increase their withholding and/or estimated tax payments for the year to avoid underpayment penalties?

Increase in withholding