20) 20. George, a high-bracket taxpayer, wishes to shift some of his own taxable income from corporate bonds he owns to his 25-year-old daughter, Debra, so that Debra rather than George is taxed on the interest. One alternative is to make a gift of the interest, and the other is to make a gift of the bonds themselves. Evaluate the pros and cons of each alternative.

The audit senior on the audit of Frankel Factors is preparing the audit plan for the year ended June 30, 2023. The following notes relate to the payroll application system that went live on January 1, 2023:

1. The new payroll application is more complex than the old system, but its reporting function provides more detail. For example, the new application calculates leave, pension, payroll tax, and employee benefit expenses, as well as the corresponding accruals.
2. Due to the brief time available to implement the new system, the previous application ceased operation on December 31, 2022, and the new application went live on January 1, 2023, without running parallel with the previous application. Staff training and testing of the new application was limited.
3. Access to the master files is restricted to the payroll supervisor and her assistant. Access to transaction files is restricted to payroll staff who are responsible for the processing of bi-weekly and monthly pay.
Prior to the introduction of the new payroll application system, the payroll master file and transaction files were kept in a separate database from the general ledger application. At the end of each month, the IT staff imported transaction data from the database into the general ledger. Management decided to upgrade the existing accounting system due to the frequent problems encountered by IT staff when importing data into the general ledger.

Payroll controls
1. a.Analysis: Based on the information above, explain two concerns about the payroll application's integration with the general ledger application.
2. b.Analysis: Describe (don't just list) one IT application control to ensure the accuracy of the salaries and wages expenses transaction.
3. c.Analysis: Describe (don't just list) one IT application control to ensure the occurrence of the salaries and wages expenses transaction.
4. d. Evaluation: design and describe in details appropriate tests of controls you would use to satisfy yourself about the effectiveness of these internal controls.

Lodi Company is authorized to issue 100,000 shares of no-par, $6 stated-value common stock and 10,000 shares of 9%, $100 par preferred stock. It enters into the following transactions on December 31:

Required:

Chart of Accounts

General Journal

Prepare journal entries to record the transactions on December 31. Memorandum entry is not recorded. Additional Instruction

PAGE 1PAGE 2

GENERAL JOURNAL

Record items 1 and 2 on page 1 and items 3-5 on page 2

Flora's Gifts reported the following current-month data for its only product. The company uses a periodic inventory system, and its ending inventory consists of 90 units—65 units from the January 6 purchase and 25 units from the January 25 purchase. Jan. 1 Beginning inventory 210 units @ $4.50 = $ 945.00 Jan. 6 Purchase 385 units @ $4.30 = 1,655.50 Jan. 17 Purchase 615 units @ $3.80 = 2,337.00 Jan. 25 Purchase 37 units @ $3.50 = 129.50 Totals 1,247 units $ 5,067.00 Determine the cost assigned to ending inventory and to cost of goods sold for the following.

Unit Information with BWIP, FIFO Method

Jackson Products produces a barbeque sauce using three departments: Cooking, Mixing, and Bottling. In the Cooking Department, all materials are added at the beginning of the process. Output is measured in ounces. The production data for July are as follows:

Required:

1. Prepare a physical flow schedule for July.

2. Prepare an equivalent units schedule for July using the FIFO method. Enter percentages as whole numbers. If an amount box does not require an entry, enter "0".

3. What if 60 percent of the materials were added at the beginning of the process and 40 percent were added at the end of the process (all ingredients used are treated as the same type or category of materials)? How many equivalent units of materials would there be?
equivalent units

Prepare a balance sheet as of December 31, 2019.

After the success of the company’s first two months, Santana Rey continues to operate Business Solutions. The November 30, 2019, unadjusted trial balance of Business Solutions (reflecting its transactions for October and November of 2019) follows.

Business Solutions had the following transactions and events in December 2019.   

The following additional facts are collected for use in making adjusting entries prior to preparing financial statements for the company’s first three months.

1. The December 31 inventory count of computer supplies shows $590 still available.
2. Three months have expired since the 12-month insurance premium was paid in advance.
3. As of December 31, Lyn Addie has not been paid for four days of work at $110 per day.
4. The computer system, acquired on October 1, is expected to have a four-year life with no salvage value.
5. The office equipment, acquired on October 1, is expected to have a five-year life with no salvage value.
6. Three of the four months' prepaid rent have expired.

Required:
1. Prepare journal entries to record each of the December transactions and events for Business Solutions.
2-a. Prepare adjusting entries to reflect a through f.
2-b. Post the journal entries to record each of the December transactions, adjusting entries to the accounts in the ledger.
3. Prepare an adjusted trial balance as of December 31, 2019.
4. Prepare an income statement for the three months ended December 31, 2019.
5. Prepare a statement of retained earnings for the three months ended December 31, 2019.
6. Prepare a balance sheet as of December 31, 2019.
7. Record and post the necessary closing entries as of December 31, 2019.
8. Prepare a post-closing trial balance as of December 31, 2019.

Blendit (BLD) just developed new universal titanium replacement mixer blades. These replacement blades can be used in most mixers currently on the market. BLD is selling these blades with a right of return for 30 days. On January 15, management believes it is probable that 10% of the titanium blades sold will be returned. This belief is based on significant experience in estimating returns on other mixer blades BLD has developed and sold in the past. BLD estimates the cost of processing any returned blades will be insignificant. On January 15,Chef's Toolbox (CTX0 purchases and pays for 40 blades at a cost of $20 each. The cost to manufacture each blade was $14. On January 31, BLD's assessment of potential returns had not changed from its assessment on January 15. Requirements: · Review ASC 606-10-05-04, ASC 606-10-32-2 through 12, ASC 606-10-55-22 through 28 · Prepare a detailed explanation of each of the five steps of revenue recognition. Include references to the guidance to support your proposed accounting. Show any calculations you make to support your journal entries. · Record all accounting entries for BLD for the month of January based on the new guidance on revenue recognition in ASC 606

The following is the Easton Company adjusted Trial Balance. Easton Company Adjusted Trial Balance December 31, 2018 Account Title Debit Credit Cash $88,665 Accounts Receivable 232,400 Supplies 17,000 Equipment 395,000 Accumulated Depreciation $224,260 Accounts Payable 72,555 Capital Stock 220,000 Retained Earnings 127,145 Service Revenue 881,105 Interest Income 5,500 Dividends 9,000 Rent Expense 59,500 Wages Expense 529,000 Supplies Expense 42,000 Utilities Expense 8,000 Depreciation Expense 150,000 ________ Totals $1,530,565 $1,530,565 Use this information to prepare the Single-Step Income Statement for the fiscal year. There are additional lines in the formatted income statement form to allow for authorized alternate presentations.

The following is the Easton Company's adjusted Trial Balance. Easton Company Adjusted Trial Balance December 31, 2018 Account Title Debit Credit Cash $88,665 Accounts Receivable 232,000 Supplies 17,000 Equipment 395,000 Accumulated Depreciation $224,260 Accounts Payable 72,555 Capital Stock 220,000 Retained Earnings 127,145 Service Revenue 877,105 Interest Income 5,500 Dividends 7,000 Rent Expense 59,900 Wages Expense 529,000 Supplies Expense 40,000 Utilities Expense 8,000 Depreciation Expense 150,000 ________ Totals $1,526,565 $1,526,565 Use this information to prepare the Balance Sheet for the fiscal year. There are additional lines in the formatted Balance Sheet form to allow for authorized alternate presentations.

Michael Company uses job-order costing. The company has gathered the following data:

Direct materials purchased for cash                   $60,000

Direct materials requisitioned                            $50,000

Direct labor costs incurred                                  $90,000

Factory overhead costs incurred                         $60,000

Cost of goods completed                                   $180,000

Cost of goods sold                                             $170,000

Sales for cash                                                    $300,000

Factory overhead applied                                             ?

Factory overhead costs are applied at 90% of direct labor costs.

Required:

1. A) Prepare the required journal entries for the above transactions.
2. B) Prepare the journal entry to dispose of the overhead variance using the immediate write-off method.

Lanco Corporation, an accrual-method corporation, reported taxable income of $2,380,000 this year. Included in the computation of taxable income were the following items:

• MACRS depreciation of $232,500. Straight-line depreciation would have been $152,000.
• A net capital loss carryover of $12,000 from last year.
• A net operating loss carryover of $28,600 from last year.
• $65,850 capital gain from the distribution of land to the company’s sole shareholder (see below).

Not included in the computation of taxable income were the following items:

• Tax-exempt income of $7,150.
• Life insurance proceeds of $349,000.
• Excess current-year charitable contribution of $4,100 (to be carried over to next year).
• Tax-deferred gain of $23,100 on a like-kind exchange.
• Federal income tax refund from last year of $41,700.
• Nondeductible life insurance premium of $4,000.
• Nondeductible interest expense of $1,200 on a loan used to buy tax-exempt bonds.

Lanco's accumulated E&P at the beginning of the year was $2,820,000. During the year, Lanco made the following distributions to its sole shareholder, Luigi (Lug) Nutt:

• June 30: $67,500.
• September 30: Parcel of land with a fair market value of $77,750. Lanco’s tax basis in the land was $11,900. Lug assumed an existing mortgage on the property of $24,000.

Required:

1. Compute Lanco’s current E&P.
2. Compute the amount of dividend income reported by Lug Nutt this year as a result of the distributions. Answer: 121,250
3. Compute Lanco’s accumulated E&P at the beginning of next year.

Novak Corporation sells one product, with information for July as follows:

Novak uses the FIFO cost formula. All purchases and sales are on account. Ignore any estimated returns on purchases and sales.

A. Assume Novak uses a periodic system. Prepare all journal entries needed, including the end-of-month adjusting entry to record cost of goods sold. A physical count indicates that the ending inventory for July is 110 units. (Credit account titles are automatically indented when the 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. Record journal entries in the order presented in the problem.)

B. Calculate gross profit using the periodic system.

C. Assume Novak uses a perpetual system. Prepare all July journal entries

D. Calculate gross profit using the perpetual system.

A list of possible accounts is as follows:

“In my opinion, we ought to stop making our own drums and accept that outside supplier’s offer,” said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. “At a price of $20 per drum, we would be paying $4.25 less than it costs us to manufacture the drums in our own plant. Since we use 75,000 drums a year, that would be an annual cost savings of $318,750.” Antilles Refining’s current cost to manufacture one drum is given below (based on 75,000 drums per year): Direct materials $ 11.10 Direct labor 6.00 Variable overhead 1.60 Fixed overhead ($2.80 general company overhead, $1.75 depreciation, and, $1.00 supervision) 5.55 Total cost per drum $ 24.25 A decision about whether to make or buy the drums is especially important at this time because the equipment being used to make the drums is completely worn out and must be replaced. The choices facing the company are: Alternative 1: Rent new equipment and continue to make the drums. The equipment would be rented for $225,000 per year. Alternative 2: Purchase the drums from an outside supplier at $20 per drum. The new equipment would be more efficient than the equipment that Antilles Refining has been using and, according to the manufacturer, would reduce direct labor and variable overhead costs by 25%. The old equipment has no resale value. Supervision cost ($75,000 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment’s capacity would be 125,000 drums per year. The company’s total general company overhead would be unaffected by this decision. (Round all intermediate calculations to 2 decimal places.) Required: 1. To assist the managing director in making a decision, prepare an analysis showing the total cost and the cost per drum for each of the two alternatives given above. Assume that 75,000 drums are needed each year. a. What will be the total relevant cost of 75,000 drums if they are manufactured internally as compared to being purchased? b. What would be the per unit cost of each drum manufactured internally? (Round your answer to 2 decimal places.) c. Which course of action would you recommend to the managing director? Purchase from the outside supplier Manufacture internally Indifferent between the two alternatives 2a-1. What will be the total relevant cost of 93,750 drums if they are manufactured internally? 2a-2. What would be the per unit cost of drums? 2 a-3. What course of action would you recommend if 93,750 drums are needed each year? Indifferent between the two alternatives Manufacture internally Purchase from the outside supplier 2b-1. What will be the total relevant cost of 125,000 drums if they are manufactured internally? 2b-2. What would be the per unit cost of drums? (Round your answer to 2 decimal places.) 2b-3. What course of action would you recommend if 125,000 drums are needed each year? Manufacture internally Purchase from the outside supplier Indifferent between the two alternatives

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 44,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Total Direct materials $ 15 $ 660,000 Direct labor 6 264,000 Variable manufacturing overhead 3 132,000 Fixed manufacturing overhead 9 396,000 Variable selling expense 2 88,000 Fixed selling expense 6 264,000 Total cost $ 41 $ 1,804,000 The Rets normally sell for $46 each. Fixed manufacturing overhead is constant at $396,000 per year within the range of 37,000 through 44,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 37,000 Rets through regular channels next year. A large retail chain has offered to purchase 7,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have to purchase a special machine to engrave the retail chain’s name on the 7,000 units. This machine would cost $14,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. Determine the impact on profits next year if this special order is accepted. 2. Refer to the original data. Assume again that Polaski Company expects to sell only 37,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 7,000 Rets. The Army would pay a fixed fee of $2.00 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. If Polaski Company accepts the order, by how much will profits increase or decrease for the year? 3. Assume the same situation as that described in (2) above, except that the company expects to sell 44,000 Rets through regular channels next year. Thus, accepting the U.S. Army’s order would require giving up regular sales of 7,000 Rets. If the Army’s order is accepted, by how much will profits increase or decrease from what they would be if the 7,000 Rets were sold through regular channels?