Smith Corp. orally engaged TRA CPAs, to audit its financial statements. The management of Smith Corp. informed TRA CPAs that it suspected that the accounts receivable was materially overstated. Although the financial statements audited by TRA CPAs did, in fact, include a materially overstated accounts receivable balance, TRA issued an unqualified opinion. Smith Corp then relied on the financial statements in deciding to obtain a loan from Town Bank to expand its operations and Town Bank relied on the financial statements in making the loan to Smith Corp. As a result of the overstated accounts receivable balance, Smith Corp. has defaulted on the loan and has incurred a substantial loss. If Smith Corp sues TRA CPAs for negligence in failing to discover the overstatement, what is TRA CPA's best defense?

What must an annual report include to be considered a good report?

The annual report of General Mills, maker of Wheaties, Cheerios, and Betty Crocker baking

products, for the year ended May 29, 2011, contained the following($ in millions):

                                                                          May 29, 2011                   May 30, 2010

Total land, building, and equipment                    $7,492.1                              $6,949.7

Less: Accumulated depreciation                        $4,146.2                              $3,822.0

Net land. building, and equipment                  $3345.9                              $3,127.7                  

During fiscal 2011, depreciation expense was $472.6 million, and General Mills acquired land,

buildings, and equipment worth $848.8 million. Assume that no gain or loss arose from the

disposition of land, buildings, and equipment and that General Mills received cash of $158.0

million from such disposals.

Compute (1) the original historical cost of assets sold or retired during fiscal 2011, (2) the amount

of accumulated depreciation associated with the assets sold or retired, and (3) the book value of

the assets sold or retired. Hint: The use of T-accounts may help your analysis.

1. Cash Budget

   The controller of Bridgeport Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:

   	September		October		November
   Sales	$118,000		$142,000		$199,000
   Manufacturing costs	50,000		61,000		72,000
   Selling and administrative expenses	41,000		43,000		76,000
   Capital expenditures	_		_		48,000

   The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $7,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in January, and the annual property taxes are paid in December. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.

   Current assets as of September 1 include cash of $45,000, marketable securities of $64,000, and accounts receivable of $131,200 ($103,000 from July sales and $28,200 from August sales). Sales on account for July and August were $94,000 and $103,000, respectively. Current liabilities as of September 1 include $7,000 of accounts payable incurred in August for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $17,000 will be made in October. Bridgeport’s regular quarterly dividend of $7,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $44,000.

   Required:

   1. Prepare a monthly cash budget and supporting schedules for September, October, and November. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign. Assume 360 days per year for interest calculations.

   Bridgeport Housewares Inc.
   Cash Budget
   For the Three Months Ending November 30
   	September	October	November
   Estimated cash receipts from:
   Cash sales	$	$	$
   Collection of accounts receivable
   Total cash receipts	$	$	$
   Less estimated cash payments for:
   Manufacturing costs	$	$	$
   Selling and administrative expenses
   Capital expenditures
   Other purposes:
   Income tax
   Dividends
   Total cash payments	$	$	$
   Cash increase or (decrease)	$	$	$
   Plus cash balance at beginning of month
   Cash balance at end of month	$	$	$
   Less minimum cash balance
   Excess or (deficiency)	$	$	$

   2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?

   The budget indicates that the minimum cash balance will be maintained in November. This situation can be corrected by and/or by the    of the marketable securities if they are held for such purposes. At the end of September and October, the cash balance will the minimum desired balance.

Shak Inc has accumulated the following data for the past 5 months:

Number of units total overhead costs

August . 2,250 $39,820

September 2,340 $38,650

October . 2,180 $37,880

November 2,080 $38,110

December 2,090 $35,830

Shak Inc, uses the high/low method of separating mixed costs into variable  and fixed components.

Required:

A. Calculate the variable overhead costs per unit and the total fixed overhead costs.

B. If the company expects to produce 3,000 units in January, what will the estimated total overhead cost be?

This week we will be studying budgeting in governmental entities. Locate a recent article from your local city, town, or state that focuses on budgeting. Summarize the article in your own words and relate the discussion to any of the topics that we cover during this week. Identify any funds mentioned or implied in the article, as well as how the article relates to the budgeting process used by government entities. How does the article relate to what you have learned about internal and external users of the government's budget?

McDermott Company has developed a new industrial component called IC-75. The company is excited about IC-75 because it offers superior performance relative to the comparable component sold by McDermott’s primary competitor. The competing part sells for $1,400 and needs to be replaced after 2,200 hours of use. It also requires $300 of preventive maintenance during its useful life.

The IC-75’s performance capabilities are similar to its competing product with two important exceptions—it needs to be replaced after 4,400 hours of use and it requires $400 of preventive maintenance during its useful life.

Required:

From a value-based pricing standpoint:

1. What is the reference value that McDermott should consider when pricing IC-75?

2. What is the differentiation value offered by IC-75 relative the competitor’s offering for each 4,400 hours of usage?

3. What is IC-75’s economic value to the customer over its 4,400-hour life?

4. What range of possible prices should McDermott consider when setting a price for IC-75?

Combat Fire, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher. The home model is a high-volume (54,000 units), half-gallon cylinder that holds 2 1/2 pounds of multi-purpose dry chemical at 480 PSI. The commercial model is a low-volume (10,200 units), two-gallon cylinder that holds 10 pounds of multi-purpose dry chemical at 390 PSI. Both products require 1.5 hours of direct labor for completion. Therefore, total annual direct labor hours are 96,300 or [1.5 hours × (54,000 + 10,200)]. Estimated annual manufacturing overhead is $ 1,590,008. Thus, the predetermined overhead rate is $ 16.51 or ($ 1,590,008 ÷ 96,300) per direct labor hour. The direct materials cost per unit is $18.50 for the home model and $26.50 for the commercial model. The direct labor cost is $19 per unit for both the home and the commercial models.

The company’s managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows.

(a)

Under traditional product costing, compute the total unit cost of each product. (Round answers to 2 decimal places, e.g. 12.50.)

2.)Under ABC, complete the schedule showing the computations of the activity-based overhead rates (per cost driver). (Round your answers to 2 decimal places, e.g. 2.25.)

3.)Complete the schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. (Use rates from part b above and round cost assigned to 0 decimal places, e.g. 12,250. Round overhead per unit to 2 decimal places, e.g. 2.25. Note that due to rounding your total cost assigned will be slightly different than calculated above.)
Cost Driver Home Model
Commercial Model
Cost Assigned

4.) Compute the total cost per unit for each product under ABC. (Round your answers to 2 decimal places, e.g. 12.25.)
Home Model $
Commercial Model $

5.)Classify each of the activities as a value-added activity or a non-value-added activity.
Activity
Receiving value-addednon-value-added
Forming non-value-addedvalue-added
Assembling value-addednon-value-added
Testing value-addednon-value-added
Painting non-value-addedvalue-added
Packing and shipping value-addednon-value-added

Whirly corporation most recent income statement is shown below:

Total Per Unit

Sales (7,600 units) 243,200 32.00

Variable Expenses 144,400 19.00

Contribution Margin 98,800

Fixed Expenses 55,300

Net Operating Income 43,500

Required:

Prepare a new contribution format income statement under each of the following conditions (consider each case independently):

1. The sales volume increases by 60 units

2. The Sales Volume decreases by 60 units

3. The Sales Volume is 6,600

The following selected data were taken from the accounting records of Metcalf Manufacturing. The company uses direct-labor hours as its cost driver for overhead costs.

March’s costs consisted of machine supplies ($219,300), depreciation ($29,500), and plant maintenance ($644,200). These costs exhibit the following respective behavior: variable, fixed, and semivariable.

The manufacturing overhead figures presented in the preceding table do not include Metcalf’s supervisory labor cost, which is step-fixed in nature. For volume levels of less than 15,000 hours, supervisory labor amounts to $74,500. The cost is $149,000 from 15,000–29,999 hours and $223,500 when activity reaches 30,000 hours or more.

Required:

1. Determine the machine supplies cost and depreciation for January.

2. Using the high-low method, analyze Metcalf’s plant maintenance cost and calculate the monthly fixed portion and the variable cost per direct-labor hour.

3. Assume that present cost behavior patterns continue into the latter half of the year. Estimate the total amount of manufacturing overhead the company can expect in November if 29,300 direct-labor hours are worked.

Moravia Company processes and packages cream cheese. The following data have been compiled for the month of April. Conversion activity occurs uniformly throughout the production process.

Prepare schedules to accomplish each of the following process-costing steps for the month of April. Use the weighted-average method of process costing.

Required:

1. Analysis of physical flow of units.

2. Calculation of equivalent units.

3. Computation of unit costs. (Round "Cost per Equivalent Unit" to 2 decimal places.)

4. Analysis of total costs. (Round "Cost per Equivalent Unit" to 2 decimal places.)

ABC Incorporated began operations on Jan 1^st, 2012 with an initial issuance of 10,000 shares,( each with par value $0.10), for $5 per share

1. On Jan 1^st, 2012, the company purchased a two-year fire insurance policy worth $10,000 and had paid it with cash.
2. Company purchased equipment worth $100,000 on Jan 1^st by signing a one-year Notes Payable. Interest rate on the loan was 8% and the interest and the entire principal will be paid on Jan 1^st 2013. The depreciation on equipment for the year 2012 was $20,000
3. On February 1^st, 2012 the company entered into a contract to provide consulting services. It received an advance of $120,000. The company performs 5% of the work for which it was contracted, every month.
4. On November 15^th, 2012, the company bought a piece of land for $200,000 by taking a 30-year mortgage loan.
5. On Dec 1^st, the company makes a mortgage payment $2,000 which was composed of $1,500 principal payment and $500 interest expense.
6. In 2012, the company purchased (in cash) and used up office supplies worth $20,000.
7. Company purchased Investments worth $20,000 on Apr 1^st 2012. The company receives 10% interest on its Investments annually on June 30^th
8. On Feb 15^th, 2012, the company bought toys inventory worth $90,000 on credit from its suppliers.
9. On March 20^th, 2012, the company sold toys for $180,000. The company received 50% cash and the rest remained on account. The cost of these toys sold was $40,000
10. The company’s franchisees owe ABC’s $800 in royalties for sales the franchisees made in the last week of December 2012.
11. Utilities expenses for the year 2012 were $10,000 and were paid in cash.
12. Wages accrued in the last week of 2012 were $2,000 and will be paid in the first week of 2013.
13. On December 15^th, 2012, the company declared cash dividends of $20,000 which will be paid sometime in 2013.

Prepare the journal entries (both regular and adjusting), trial balance, Income Statement, Statement of Retained Earnings and Balance Sheet for the year ending December 31^st 2012. Also create a T-Account for Cash.

Lionel Corporation manufactures pharmaceutical products sold through a network of sales agents in the United States and Canada. The agents are currently paid an 18% commission on sales; that percentage was used when Lionel prepared the following budgeted income statement for the fiscal year ending June 30, 2019:

Since the completion of the income statement, Lionel has learned that its sales agents are requiring a 5% increase in their commission rate (to 23%) for the upcoming year. As a result, Lionel’s president has decided to investigate the possibility of hiring its own sales staff in place of the network of sales agents and has asked Alan Chen, Lionel’s controller, to gather information on the costs associated with this change.

Alan estimates that Lionel must hire eight salespeople to cover the current market area, at an average annual payroll cost for each employee of $80,000, including fringe benefits expense. Travel and entertainment expenses is expected to total $770,000 for the year, and the annual cost of hiring a sales manager and sales secretary will be $235,000. In addition to their salaries, the eight salespeople will each earn commissions at the rate of 10% of sales. The president believes that Lionel also should increase its advertising budget by $670,000 if the eight salespeople are hired.

Required

1. Determine Lionel’s breakeven point (operating profit = 0) in sales dollars for the fiscal year ending June 30, 2019, if the company hires its own sales force and increases its advertising costs. Prove this by constructing a contribution income statement.

2. If Lionel continues to sell through its network of sales agents and pays the higher commission rate, determine the estimated volume in sales dollars that would be required to generate the operating profit as projected in the budgeted income statement.

Breakeven point (in sales dollars): _____________

Contribution Income Statement

Sales ___________

- Variable costs:

Sales commissions _____________

Cost of goods sold ___________=

Contribution margin: ____________

Fixed costs:

Exisiting:____________

+Incremental: ___________=____________

Operating income; _______________________

Great Lakes Distributors buys 100,000 bushels of soybean futures at $9.95 per bushel, to cover a commitment to deliver 100,000 bushels of soybeans to a customer in 60 days at a price of $10.25 per bushel. No margin deposit is required. Spot and futures prices for soybeans are equal and fluctuate between $9.50 and $10.40 per bushel. On the day of delivery to the customer, Great Lakes closes its futures position and buys soybeans in the spot market to fulfill its agreement with the customer.

a. Calculate the cost per bushel to Great Lakes if the spot price at the time of purchase is $9.50. Calculate the cost per bushel if the spot price is $10.40.

b. Prepare the entries Great Lakes makes to record the above events if the spot price is $10.20 per bushel on the day the futures contract is closed, Great Lakes buys the soybeans on the spot market, and delivers them to the customer. The futures position qualifies as a fair value hedge of the firm commitment to sell soybeans to the customer. Great Lakes records income effects of these transactions in cost of goods sold.

1. In thinking about overcoming the negative publicity and securities fraud fines related to revenue fraud, some companies succeed and move on, while others fail following the fraud. What forces might influence corporate “survivability” in the face of financial reporting fraud related to revenue?