Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost.
Last year, the company sold 48,000 of these balls, with the following results:
| Sales (48,000 balls) | $ | 1,200,000 |
| Variable expenses | 720,000 | |
| Contribution margin | 480,000 | |
| Fixed expenses | 319,000 | |
| Net operating income | $ | 161,000 |
Required:
1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year’s sales level.
2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball. If this change takes place and the selling price per ball remains constant at $25.00, what will be next year's CM ratio and the break-even point in balls?
3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $161,000, as last year?
4. Refer again to the data in (2) above. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement 1a), what selling price per ball must it charge next year to cover the increased labor costs?
5. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company’s new CM ratio and new break-even point in balls?
6. Refer to the data in (5) above.
a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $161,000, as last year?
b. Assume the new plant is built and that next year the company manufactures and sells 48,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage.
In: Accounting
In: Accounting
The following summarized data were provided by the records of Mystery Incorporated for the year ended December 31:
| Administrative Expense | $ | 22,200 |
| Cost of Goods Sold | 181,000 | |
| Income Tax Expense | 20,800 | |
| Sales Returns and Allowances | 8,600 | |
| Selling Expense | 46,600 | |
| Sales of merchandise for cash | 320,000 | |
| Sales of merchandise on credit | 50,000 | |
1. Based on these data, prepare a multi-step income statement for internal reporting purposes
.2-a. What was the amount of gross profit?
2-c. Which of the following(s) is true? (Select all that apply.)
|
3. Did the gross profit percentage in the current year improve, or decline, relative to the 48 percent gross profit percentage in the prior year?
There is _______ in the gross profit percentage when compared to
48% in the previous year.
In: Accounting
S&L Financial buys and sells securities which it classifies
as available-for-sale. On December 27, 2018, S&L purchased
Coca-Cola bonds at par for $875,000 and sold the bonds on January
3, 2019, for $880,000. At December 31, the bonds had a fair value
of $873,000, and S&L has the intent and ability to hold the
investment until fair value recovers.
Prepare journal entries to record (a) any unrealized gains or
losses occurring in 2018 and (b) the sale of the bonds in 2019,
including recognition of any unrealized gains in 2019 prior to sale
and reclassification of amounts out of OCI.
Note: Enter debits before credits.
|
Note: Enter debits before credits.
|
Note: Enter debits before credits.
|
In: Accounting
Topic: creative accounting
a) What is the problem?
b) How to solve the problem/issue/case?
In: Accounting
Special Order Review company has the following information relating to their plastics factory
Current Selling Price $10.00
Current Monthly Production 15,000 units
Total Direct Materials ( all Variable) $45,000.00
Total Direct Labor (all variable) $15,000.00
Total Overhead (50% variable) $50,000.00
Total Marketing Cost (75% variable) $30,000.00
A new customer has offered to buy 3000 units but will pay only $7.50. The special order will incur additional costs of $1.50 per unit but there will be no additional marketing costs paid.
REQUIRED: 1. Calculate the current variable cost per unit and fixed cost.
2. Calculate the gain or loss on the special order
In: Accounting
Patricia, a CPA, is the new controller for a small construction company, Domingo Builders, that employs 75 people. The company specializes in custom homes greater than 3,500 square feet. The demand for large custom homes has significantly decreased because of the downturn in the economy. As a result of economic conditions their target market is dwindling, significantly affecting the company’s finances.
The ability to collect an outstanding receivable that is significant and material is in doubt. Prior to year-end Patricia discusses the outstanding receivable with the CEO. Patricia believes that the company owing the outstanding receivable will not last for another year. Patricia believes that the allowance for uncollectible accounts must be adjusted to a value that is reasonably realizable. The CEO disagrees.
The CEO is concerned that if the allowance adjustments are made, then Domingo will not look financially sound. Additionally, the CEO is concerned about the opinion that the auditor may provide as a result of the allowance adjustment. Anything less than a “clean opinion” would jeopardize Domingo’s ability to secure a much-needed bank loan. If the company cannot secure the loan next year, then Domingo might be out of business too.
The CEO urges Patricia to ignore the allowance adjustment. After all, it is not certain that the outstanding receivable will be uncollectible; the company has not filed for bankruptcy. The CEO believes that Domingo can just weather the storm and will recover from the economic downturn. “I know business will pick up”.
Patricia reflects on what can be done. From her previous experience in public accounting, Patricia reflects on the audit process and information that she thinks the auditors would need to know.
In: Accounting
The pretax financial income (or loss) figures for Windsor Company are as follows.
|
2015 |
$169,000 | ||
|
2016 |
247,000 | ||
|
2017 |
79,000 | ||
|---|---|---|---|
|
2018 |
(169,000 | ) | |
|
2019 |
(356,000 | ) | |
|
2020 |
131,000 | ||
|
2021 |
99,000 |
Pretax financial income (or loss) and taxable income (loss) were
the same for all years involved. Assume a 25% tax rate for 2015 and
2016 and a 20% tax rate for the remaining years.
Prepare the journal entries for the years 2017 to 2021 to record
income tax expense and the effects of the net operating loss
carryforwards. All income and losses relate to normal operations.
(In recording the benefits of a loss carryforward, assume that no
valuation account is deemed necessary.) (Credit account
titles are automatically indented when amount is entered. Do not
indent manually. If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts.)
|
Account Titles and Explanation |
Debit |
Credit |
|---|---|---|
|
2017 |
||
|
enter an account title to record carryback |
enter a debit amount |
enter a credit amount |
|
enter an account title to record carryback |
enter a debit amount |
enter a credit amount |
|
2018 |
||
|
enter an account title to record carryforward |
enter a debit amount |
enter a credit amount |
|
enter an account title to record carryforward |
enter a debit amount |
enter a credit amount |
|
2019 |
||
|
enter an account title |
enter a debit amount |
enter a credit amount |
|
enter an account title |
enter a debit amount |
enter a credit amount |
|
2020 |
||
|
enter an account title |
enter a debit amount |
enter a credit amount |
|
enter an account title |
enter a debit amount |
enter a credit amount |
|
2021 |
||
|
enter an account title |
enter a debit amount |
enter a credit amount |
|
enter an account title |
enter a credit amount |
enter a debit amount |
This is all of the information given in the problem. There is no other mention of time.
In: Accounting
On January 1, 2018, the Mason Manufacturing Company began
construction of a building to be used as its office headquarters.
The building was completed on September 30, 2019.
Expenditures on the project were as follows:
| January 1, 2018 | $ | 1,500,000 | |
| March 1, 2018 | 1,200,000 | ||
| June 30, 2018 | 1,400,000 | ||
| October 1, 2018 | 1,200,000 | ||
| January 31, 2019 | 360,000 | ||
| April 30, 2019 | 693,000 | ||
| August 31, 2019 | 990,000 | ||
On January 1, 2018, the company obtained a $4,000,000 construction
loan with a 14% interest rate. The loan was outstanding all of 2018
and 2019. The company’s other interest-bearing debt included two
long-term notes of $1,000,000 and $4,000,000 with interest rates of
10% and 12%, respectively. Both notes were outstanding during all
of 2018 and 2019. Interest is paid annually on all debt. The
company’s fiscal year-end is December 31.
Required:
1. Calculate the amount of interest that Mason
should capitalize in 2018 and 2019 using the specific interest
method.
3. Calculate the amount of interest expense that
will appear in the 2018 and 2019 income statements.
Calculate the amount of interest that Mason should capitalize in 2018 and 2019 using the specific interest method and interest expense that will appear in the 2018 and 2019 income statements. (Enter your answers in dollars.)
|
2.
What is the total cost of the building? (Enter your answer in dollars.)
In: Accounting
Problem 12-3 (Algo) Securities available-for-sale; bond investment; effective interest [LO12-1, 12-4]
Fuzzy Monkey Technologies, Inc., purchased as a long-term
investment $180 million of 6% bonds, dated January 1, on January 1,
2021. Management intends to have the investment available for sale
when circumstances warrant. For bonds of similar risk and maturity
the market yield was 8%. The price paid for the bonds was $160
million. Interest is received semiannually on June 30 and December
31. Due to changing market conditions, the fair value of the bonds
at December 31, 2021, was $170 million.
Required:
1. to 3. Prepare the relevant journal entries on
the respective dates (record the interest at the effective
rate).
4-a. At what amount will Fuzzy Monkey report its
investment in the December 31, 2021, balance sheet?
4-b. Prepare the entry necessary to achieve this
reporting objective.
5. How would Fuzzy Monkey's 2021 statement of cash
flows be affected by this investment? (If more than one approach is
possible, indicate the one that is most likely.)
In: Accounting
Multiple-Product Break-even, Break-Even Sales Revenue
Cherry Blossom Products Inc. produces and sells yoga-training products: how-to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Cherry Blossom Products sold 13,500 DVDs and 4,500 equipment sets. Information on the two products is as follows:
| DVDs | Equipment Sets | |
| Price | $8 | $25 |
| Variable cost per unit | 4 | 15 |
Total fixed cost is $94,500.
Suppose that in the coming year, the company plans to produce an extra-thick yoga mat for sale to health clubs. The company estimates that 9,000 mats can be sold at a price of $17 and a variable cost per unit of $10. Total fixed cost must be increased by $31,500 (making total fixed cost $126,000). Assume that anticipated sales of the other products, as well as their prices and variable costs, remain the same.
In: Accounting
Daisy Tree Partnership owns and operates two apartment complexes in the metropolitan area. The first complex was contributed to the partnership by partner L. The other two partners (M and N) contributed cash which, together with borrowed funds, was used to purchase the second complex. The three partners share partnership income, loss, gain and deduction equally. The tax basis and book value of the partnership’s assets at the end of the current year are as follows: Tax Book Cash and equivalents Tax $60,000.00 Book $60,000.00 Receivables Tax $- Book $45,000.00 Apartment Complex 1 Tax $600,000.00 Book $1,500,000.00 Accumulated depreciation, complex 1 Tax $(120,000.00) Book $(300,000.00) Apartment Complex 2 Tax $2,475,000.00 Book $2,475,000.00 Accumulated depreciation, complex 2 Tax $(180,000.00) Book $(180,000.00) Land and other assets Tax $200,000.00 Book $200,000.00 Total assets Tax $2,035,000.00 Book $4,070,000.00 B. Does the curative allocation of depreciation on complex 2 from L to M and N completely “cure” the discrepancy caused by the ceiling rule with respect to the allocation of depreciation on complex 1? C. How can the partnership eliminate the remaining discrepancy?
In: Accounting
In: Accounting
Which of the following is a substantive analytical procedure?
1. Foot the accounts payable trial balance and compare with the general ledger.
2. Confirm accounts payable balances directly with vendors.
3. Multiply the commission rate by total sales and compare the results with commission expense.
4. Compute inventory turnover for each major product line and compare with industry standards.
Group of answer choices
All of the above are substantive analytical procedures
Item 4 only
Items 3 and 4
Item 3 only
Items 1, 3, and 4
In: Accounting
Whispering Company reports pretax financial income of $66,100 for 2020. The following items cause taxable income to be different than pretax financial income.
| 1. | Depreciation on the tax return is greater than depreciation on the income statement by $14,800. | |
| 2. | Rent collected on the tax return is greater than rent recognized on the income statement by $23,900. | |
| 3. | Fines for pollution appear as an expense of $10,600 on the income statement. |
Whispering’s tax rate is 30% for all years, and the company expects
to report taxable income in all future years. There are no deferred
taxes at the beginning of 2020.Compute taxable income and income
taxes payable for 2020.
|
Taxable income |
$enter a dollar amount |
|
|---|---|---|
|
Income taxes payable |
$enter a dollar amount |
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
|
Account Titles and Explanation |
Debit |
Credit |
|---|---|---|
|
enter an account title |
enter a debit amount |
enter a credit amount |
|
enter an account title |
enter a debit amount |
enter a credit amount |
|
enter an account title |
enter a debit amount |
enter a credit amount |
|
enter an account title |
enter a debit amount |
enter a credit amount |
Prepare the income tax expense section of the income statement for 2020, beginning with the line “Income before income taxes.” (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
|
Whispering Company |
||
|---|---|---|
|
select an income statement item CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues |
$enter a dollar amount |
|
|
select an opening section name CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues |
||
|
select an income statement item CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues |
$enter a dollar amount |
|
|
select an income statement item CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues |
enter a dollar amount |
|
|
enter a subtotal of the two previous amounts |
||
|
select a closing name for this statement CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues |
$enter a total net income or loss amount |
|
Compute the effective income tax rate for 2020. (Round answer to 1 decimal places, e.g. 25.5%.)
| Effective income tax rate |
enter the Effective income tax rate in percentages rounded to 1 decimal place |
% |
In: Accounting