Sales-Related and Purchase-Related Transactions for Seller and Buyer Using Perpetual Inventory System

The following selected transactions were completed during April between Swan Company and Bird Company:

Haas Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:

During its first year of operations, Haas produced 40,000 units and sold 40,000 units. During its second year of operations, it produced 55,000 units and sold 30,000 units. In its third year, Haas produced 20,000 units and sold 45,000 units. The selling price of the company’s product is $46 per unit.

Required:

1. Compute the company’s break-even point in unit sales.

2. Assume the company uses variable costing:

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3. Assume the company uses variable costing.

3. Assume the company uses absorption costing:

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3. Assume the company uses absorption costing. (Round your intermediate calculations to 2 decimal places.)

Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales occur. The company has requested a $40,000, 90-day loan from its bank to help meet cash requirements during the quarter. Since Herbal Care has experienced difficulty in paying off its loans in the past, the loan officer at the bank has asked the company to prepare a cash budget for the quarter. In response to this request, the following data have been assembled: a. On July 1, the beginning of the third quarter, the company will have a cash balance of $47,500. b. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales are on account): May (actual) $ 290,000 June (actual) $ 330,000 July (budgeted) $ 450,000 August (budgeted) $ 660,000 September (budgeted) $ 340,000 Past experience shows that 25% of a month’s sales are collected in the month of sale, 70% in the month following sale, and 3% in the second month following sale. The remainder is uncollectible. c. Budgeted merchandise purchases and budgeted expenses for the third quarter are given below: July August September Merchandise purchases $ 270,000 $ 396,000 $ 204,000 Salaries and wages $ 42,000 $ 52,000 $ 53,000 Advertising $ 170,000 $ 128,000 $ 93,000 Rent payments $ 7,400 $ 7,400 $ 7,400 Depreciation $ 8,000 $ 8,000 $ 8,000 Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases on June 30, which will be paid during July, total $198,000. d. Equipment costing $10,000 will be purchased for cash during July. e. In preparing the cash budget, assume that the $40,000 loan will be made in July and repaid in September. Interest on the loan will total $1,200. Required: 1. Prepare a schedule of expected cash collections for July, August, and September and for the quarter in total. 2. Prepare a cash budget, by month and in total, for the third quarter. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

It is summer of 2021, you have not been able to find work, however a vaccine for COVID – 19 is now in widespread use, yourself included. As a clever forward-looking business student, you have decided to get experience by starting and operating your own business, a lemonade stand you have named “bora bora”. In your planning you have identified that there is potential to build a sustaining company, and as such you set up an accounting system and formal business structure. You have no business partners.

You decide the first tasks are as follows.

Set up all the required Financial Statements, with proper formatting, so they can be used later

Clearly show the equation structure for each,

Give examples of items (Accounts) that will likely be included on each statement.

Discuss the different types of business structures “Bora bora” could adopt. Pick an option for the business and support your reasoning for why it is most appropriate.

Identify if you will have to follow IFRS or ASPE, explain why.

Required information

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

The accounts and balances for Paw Prints Pet Sitters on November 1 are provided below.

The following transactions occurred during the month of November.

1. Collected $340 from credit customers.
2. Issued a check for $750 for November's rent.
3. Paid $1,700 for salaries.
4. The owner withdrew $550 in cash for personal expenses.
5. Issued a check for $250 to pay the monthly utility bill.
6. Received $2,720 in cash for services performed.
7. Purchased office equipment for $1,340 on credit

1. Prepare an income statement for Paw Prints Pet Sitters for month ended November 30, 2019.
2. Prepare a statement of owner’s equity for Paw Prints Pet Sitters for the month end November 30, 2019.
3. Prepare a balance sheet for Paw Prints Pet Sitters as of November 30, 2019.

I have to show the following:

Income Statement- that includes all figures relate to income, with revenue, expenses and the total expenses. Along each of these figures i have to ensure that i am using the proper titling of stated income. Such as $XYZ Amount-Pertains to Accounts payable, Utilities Expense etc...

Owners Equity- this also has to include everything related to the equity the owner has as a result of these transactions.

Balance Sheet- this has to detail all of the assets, liabilities and owners equity, I also need the total in assets, then the total for liabilities and equity.

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.