2.     a) Using the following information for Campbell Enterprises, prepare an annual:

                   Multiple-step income statement

                   Retained earnings statement

                   Classified balance sheet (7 points)

b) Using the above information, compute Campbell’s gross profit rate. Please show the details of

            your computation: (1 point)

Gross profit rate            ____________________________________________

Campbell Enterprises, Inc.

Adjusted Trial Balance

December 31, 2019

                                                                                         Debit                    Credit

Cash                                                                   4,000

Accounts Receivable                                       15,000

Inventory                                                         30,000

Prepaid Insurance                                              4,000

Supplies                                                             3,000

Long-term Investment in Stock                         6,000

Land                                                                 20,000

Buildings                                                       120,000

Accumulated Depreciation—

Buildings                                                                                     20,000

Patents                                                             10,000

Accounts Payable                                                                          10,000

Unearned Revenue                                                                          2,000

Bonds Payable (due in 2023)                                                         20,000

Common Stock                                                                              80,000

Retained Earnings                                                                          44,000

Dividends                                                         30,000

Sales Revenue                                                                              305,000

Interest Revenue                                                                              5,000

Sales Discounts                                                  6,000

Sales Returns & Allowances                             8,000

Cost of Goods Sold                                        188,000

Salaries and Wages Expense                           21,000

Depreciation Expense                                      10,000

Utilities Expense                                                5,000

Insurance Expense                                             3,000

Supplies Expense                                               2,000

Interest Expense                                               1,000                                    

                                                                       486,000                 486,000

Case #1

Kumar Boats Limited manufactures and sells fishing boats. All of the company’s sales come from two products: the Hauler and the Deluxe. The Hauler is a basic boat built with the minimum required components necessary for a successful outing and sells for $24,000. The Deluxe includes additional features unavailable on the Hauler, such as adjustable padded seats, moveable storage boxes, and rod holders, and sells for $29,000. The boats are sold to retailers who then usually add an outboard motor and a trailer before selling to the consumer.

Kumar Boats Limited management is meeting to discuss recent financial results and to plan for the future. Richard Rajan, the sales manager, advocates for keeping the prices of the two boats close in price since they share many similar features (e.g., size and weight, seating capacity, etc.). Mary Borkowski, the CEO of Kumar Boats, is concerned and has reviewed the financial information for both product lines. She has noticed that sales volume has been increasing while profits (as a percentage of sales) are decreasing. Mary consulted with her production manager, Craig Steele, who informed her that he is doing his best to control costs but it is difficult since the proportion of the Deluxe boats being manufactured and sold is growing at a much faster rate than sales of the Hauler.

Mary has asked the CFO for more detailed financial information regarding the sales and manufacturing costs of each product line for the past year. The following information was provided to Mary.

1

•  Manufacturing overhead in the past year was $887,200.

•  In the existing system, manufacturing overhead is applied on the basis of direct labour hours.

•  The total direct labour hours for the past year were 22,180.

•  The hourly rate for direct labour hours is $33.

•  Selling and administrative costs for the past year was $1,468,000.

  To help Mary gain a better understanding of the costs of operations, she asked the CFO to provide her with information regarding the company’s activities for the past year. Using an activity-based costing (ABC) approach, the CFO gathered the following information:

  Financial data for the two products, based on ABC analysis, is as follows:

Required:

1. (A) Calculate unit cost using the existing costing system (i.e., using a single, plantwide rate to apply overhead costs). Calculate gross and net operating income generated for the company by the two products.

2. (B) Calculate activity rates, rounding to the nearest dollar.

3. (C) Calculate unit cost using activity-based costing, and recalculate gross and net operating

   income generated by the two products.

4. (D) Based on the results above, what advice would you give to Mary regarding her observation of increasing sales volume but decreasing profit?

2

Case #2

Hoyoh Skateboards Company (HSC) is looking to acquire another skateboard manufacturer, FreeLife Limited. Freelife Ltd. recently filed for bankruptcy and management at HSC believes that they can generate a profit from this bankrupt company. FreeLife Ltd. has accounts with all of the major sporting goods chains in Canada, a segment of the market where HSC not present.

FreeLife Ltd. manufactures two product lines: traditional boards and long boards. Traditional boards for $159 each and the long boards for $315 each. In the past year, FreeLife Ltd. produced and sold 245,000 traditional boards and 36,000 long boards.

FreeLife Ltd. uses the absorption method of costing and provided the information below to HSC. The controller of FreeLife Ltd., when presenting this financial information, suggested that Hoyoh discontinue the traditional board product line after the acquisition. The company uses just-in-time (JIT) to manage inventories and, as a result, beginning and ending inventories are kept near zero (note: at the beginning and end of the prior year, inventories had zero values).

Total production costs for the past year for each product line are as follows:

After reviewing the FreeLife Ltd.’s operational and financial information, HSCs management is certain they can eliminate 40% of FreeLife’s fixed manufacturing overhead and 80% of the fixed selling and administrative costs.

Required:
(A) Using the absorption costing approach, calculate the total manufacturing cost per unit for

each product line without the cost savings projected by HSC. What is a likely reason for FreeLife Ltd. controller’s suggestion to eliminate the traditional boards?

2. (B) Prepare a segmented income statement using variable costing (i.e., contribution margin income statement). Your income statement should reveal the overall impact of Hoyoh management’s expected savings resulting from the merger. Would you suggest that the traditional boards be discontinued under Hoyoh’s control?

3. (C) What is a significant disadvantage of JIT with regard to inventory management? If FreeLife Ltd. did have large beginning and ending inventories, what might management have done during the prior year to improve the appearance of the company’s income statement while looking for a buyer of the company?

3

Complete this formal proof of Ex(P(x)v~P(x)) from the empty set. NOTE: similar to the rule above when instantiating quantifiers, if you need a random name, always start at the beginning of the alphabet. That is, use a first; only use b if necessary; etc.

12. Comfort realty had the following selected transactions: Feb 1 signs a $50,0000, 6-month, 9% interest-bearing note payable to Citibank and receives $50,000 in cash, cash register sales total $43,200, which includes an 8% sales tax the payroll for the month consists of sales salaries $32,000 and office salaries $18,000. All wages are subject to 8% FICA taxes. A total of $8,900 federal income taxes are withheld. The salaries are paid on March 1 28 the company develops the following adjustment data 1) Interest expense of $375 has been incurred on the note 2) Employer payroll taxes include 8% FICA taxes, a 5.4% state unemployment tax, and a 0.8% federal unemployment tax 3) Some sales were made under warranty. Of the units sold under warranty, 350 are expected to become defective. Repair costs are estimated to be 40% per unit a. Journalize the February transactions b. Journalize the adjusting entries at February 28

Weston Products manufactures an industrial cleaning compound that goes through three processing departments—Grinding, Mixing, and Cooking. All raw materials are introduced at the start of work in the Grinding Department. The Work in Process T-account for the Grinding Department for May is given below:

The May 1 work in process inventory consisted of 73,000 pounds with $102,930 in materials cost and $35,040 in conversion cost. The May 1 work in process inventory was 100% complete with respect to materials and 30% complete with respect to conversion. During May, 394,000 pounds were started into production. The May 31 inventory consisted of 122,000 pounds that were 100% complete with respect to materials and 60% complete with respect to conversion. The company uses the weighted-average method in its process costing system.

Required:

1. Compute the Grinding Department's equivalent units of production for materials and conversion in May.

2. Compute the Grinding Department's costs per equivalent unit for materials and conversion for May.

3. Compute the Grinding Department's cost of ending work in process inventory for materials, conversion, and in total for May.

4. Compute the Grinding Department's cost of units transferred out to the Mixing Department for materials, conversion, and in total for May.

Dillon Products manufactures various machined parts to customer specifications. The company uses a job-order costing system and applies overhead cost to jobs on the basis of machine-hours. At the beginning of the year, the company used a cost formula to estimate that it would incur $4,215,000 in manufacturing overhead cost at an activity level of 562,000 machine-hours.

The company spent the entire month of January working on a large order for 12,400 custom-made machined parts. The company had no work in process at the beginning of January. Cost data relating to January follow:

1. Raw materials purchased on account, $319,000.
2. Raw materials used in production, $256,000 (80% direct materials and 20% indirect materials).
3. Labor cost accrued in the factory, $153,000 (one-third direct labor and two-thirds indirect labor).
4. Depreciation recorded on factory equipment, $63,900.
5. Other manufacturing overhead costs incurred on account, $85,400.
6. Manufacturing overhead cost was applied to production on the basis of 40,760 machine-hours actually worked during the month.
7. The completed job for 12,400 custom-made machined parts was moved into the finished goods warehouse on January 31 to await delivery to the customer. (In computing the dollar amount for this entry, remember that the cost of a completed job consists of direct materials, direct labor, and applied overhead.)

Required:

1. Prepare journal entries to record items (a) through (f) above [ignore item (g) for the moment].

2. Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant items from your journal entries to these T-accounts.

3. Prepare a journal entry for item (g) above.

4. If 10,400 of the custom-made machined parts are shipped to the customer in February, how much of this job’s cost will be included in cost of goods sold for February

Exercise 15-6

Bridgeport Limited’s ledger shows the following balances on December 31, 2020:

A.) Assuming that the directors decide to declare total dividends in the amount of $477,665, determine how much each class of shares should receive if the preferred shares are cumulative and fully participating. Note that one year’s dividends are in arrears on the preferred shares, which pay a dividend of $1.35 per share.

B.) Assuming that the directors decide to declare total dividends in the amount of $477,665, determine how much each class of shares should receive if the preferred shares are non–cumulative and non–participating. Note that one year’s dividends are in arrears on the preferred shares, which pay a dividend of $1.35 per share.

C.) Assuming that the directors decide to declare total dividends in the amount of $477,665, determine how much each class of shares should receive if the preferred shares are non–cumulative and are participating in distributions in excess of a 9% dividend rate on the common shares. Note that one year’s dividends are in arrears on the preferred shares, which pay a dividend of $1.35 per share.

During the year, Wright Company sells 450 remote-control airplanes for $100 each. The company has the following inventory purchase transactions for the year.

Calculate ending inventory and cost of goods sold for the year, assuming the company uses LIFO.

Classic Automobiles of Huntsville Ltd. was formed on January 1, 2016 when Classic issued common shares for $300,000. Early in January 2016, Classic made the following cash payments:

• $150,000 for equipment
• $120,000 for inventory (four cars at $30,000 each)
• $20,000 for 2016 rent on a store building
  

In February 2016, Classic purchased six cars for inventory on account. Cost of this inventory was $260,000 ($43,333.33 each). Before year-end, Classic paid $208,000 of this debt. Classic uses the FIFO method to account for inventory.

During 2016, Classic sold eight vintage autos for a total of $500,000. Before year-end, Classic collected 80% of this amount.

The business employs three people. The combined annual payroll is $95,000, of which Classic owes $4,000 at year end. At the end of the year, Classic paid income tax of $10,000.

Late in 2016, Classic declared and paid cash dividends of $11,000.

For equipment, Classic uses the straight-line depreciation method over five years with zero residual value.

1. Prepare Classic Automobiles of Huntsville Ltd.’s income statement for the year ended December 31, 2016. Use the single-step format, with all revenues listed together and all expenses listed together.
2. Prepare Classic’s balance sheet at December 31, 2016.
3. Prepare Classic’s statement of cash flows for the year ended December 31, 2016. Format cash flows from operating activities by using the indirect method.
4. Comment on the business performance based on the statement of cash flows.

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

Rubio recently invested $20,000 (tax basis) in purchasing a limited partnership interest. His at-risk amount is $15,000. In addition, Rubio’s share of the limited partnership loss for the year is $22,000, his share of income from a different limited partnership is $5,000, and he has $40,000 in wage income and $10,000 in long-term capital gains.

a. How much of Rubio’s $22,000 loss is allowed considering only the tax-basis loss limitations?

b. How much of the loss from part (a) is allowed under the at-risk limitations?

c. How much of Rubio’s $22,000 loss from the limited partnership can he deduct in the current year considering all limitations?

This corporation sells office products and performs accounting services.

S & B uses the Perpetual Inventory system and had the following balances:

S & B Office Supplies and Services

Trial Balance

November 1, 2018

During the month of November, the following summary transactions were completed.

Nov. 1   Paid November Rent $375

8    Paid $3,550 for salaries due employees, of which 1,850 is for November and $1,700 is for October.

        10     Received $1,900 cash from customers in payment of account.

        11     Purchased merchandise on account from dd’s Discount Supply $8,000, terms 2/10, n/30.

        12     Sold merchandise on account for $5,500, terms 2/10, n/30. The cost of the
merchandise sold was $4,000.

        15     Received credit from dd’s Discount Supply for merchandise returned $300.

        19     Received collections in full, less discounts, from customers billed
on sales of $5,500 on November 12.

        20     Paid dd’s Discount Supply in full, less discount.

        22     Received $2,300 Cash for services performed in November.

        25     Purchased equipment on account $5,000.

        27     Purchased supplies on account $1,700.

        28     Paid creditors $3,000 of accounts payable due.

        29     Paid Salaries $1,300.

        29     Performed services on account and billed customers $700.

        29     Received $675 from customers for services to be performed in the future.

Adjustment Data:

1. Supplies on hand are valued at $1,400.
2. Accrued salaries are $500.
3. Depreciation for the month is $250.
4. $750 of services related to the unearned service revenue has not been earned by month end.

Instructions:

1. Enter the November 1, balances in ledger accounts.
2. Journalize the November transactions.
3. Post to the ledger accounts. HINT: You will need to add some accounts to the beginning ones available.
4. Journalize and Post the Adjusting Entries.
5. Prepare an adjusted trial balance at November 30, 2018.
6. Journalize the Closing Entries.

You are required to evaluate two systems. The cost of a used system is $75,000. Through a new system, labor hours can be decreased by 20% as compared to the used system. The cost of a new system is $150,000. Both systems have a useful life of five years. According to estimations, the market value of the used system will be $20,000 in five years, and the market value of the new system will be $50,000 in five years. The used system has to operate 8 hours per day for 20 days per month. If labor costs $40 per hour and the MARR is 1% per month, which system should be recommended?

1. On February 1, 2018, Ellison Co. issued eight-year bonds with a face value of $10,000,000 and a stated interest rate of 7%, payable semiannually on July 1 and January 1. The bonds were sold to yield 8%. The bonds are callable at 101 and convertible.

1. The issue price of the bonds is
2. Record the journal entries for February 2018 at issuance and July 1.

2. Using the information above, assume that the bonds issued by Ellison Co. are convertible with each $1,000 convertible into 25 shares of common stock.    Assume that Ellison converts $5,000,000 of bonds on July 1, 2020 into common stock. Prepare the following entries:

a. Entry at February 1, 2018 for issuance of the convertible bonds

b. Entry at July 1, 2020 for the conversion of $5,000,000 of bonds.

3. Using the information above, assume that the remaining bonds are called on December 31, 2020.