Problem 10-34 (LO 10-3, 10-4)

The following account balances are for the Agee Company as of January 1, 2017, and December 31, 2017. All amounts are denominated in kroner (Kr).

January 1, 2017 December 31, 2017

Accounts payable (24,000 ) (31,500 )

Accounts receivable 45,000 95,000

Accumulated depreciation—buildings (36,000 ) (41,000 )

Accumulated depreciation—equipment 0 (6,600 )

Bonds payable—due 2020 (55,000 ) (55,000 )

Buildings 125,000 100,500

Cash 51,000 9,600

Common stock (60,000 ) (71,000 )

Depreciation expense 0 31,000

Dividends (10/1/17) 0 48,000

Equipment 0 46,000

Gain on sale of building 0 (7,600 )

Rent expense 0 18,100

Retained earnings (46,000 ) (46,000 )

Salary expense 0 36,000

Sales 0 (133,000 )

Utilities expense 0 7,500

Additional Information

*Agee issued additional shares of common stock during the year on April 1, 2017. Common stock at January 1, 2017, was sold at the start of operations in 2010.

*Agee purchased buildings in 2011 and sold one building with a book value of Kr 5,100 on July 1 of the current year.

*Equipment was acquired on April 1, 2017.

Relevant exchange rates for 1 Kr were as follows:

2010 $ 2.45

2011 2.25

January 1, 2017 2.55

April 1, 2017 2.65

July 1, 2017 2.85

October 1, 2017 2.95

December 31, 2017 3.05  

Average for 2017 2.75

a) Assuming the U.S. dollar is the functional currency, what is the remeasurement gain or loss for 2017? The December 31, 2016, U.S. dollar-translated balance sheet reported retained earnings of $96,600, which included a remeasurement loss of $13,000.

b) Assuming the foreign currency is the functional currency, what is the translation adjustment for 2017? The December 31, 2016, U.S. dollar-translated balance sheet reported retained earnings of $112,500, and a cumulative translation adjustment of $10,800 (credit balance).

Harry and Sons’ Law Offices opened on January 1,2018. During the first year of business the company had the following transactions.

January 2: The owners Invested 300,000 (the par value of the stock) into the business and acquired 30,000 shares of common stock in return.

January 15: Harry and Sons’ bought an office building in the amount of $85,000. The company took out a long-term note from the bank to finance the purchase.

February 12: Harry and Son’ billed clients for $85,000 of services performed.

March 1: Harry and Sons’ took out a two-year insurance policy, which it paid cash for in the amount of $18,000.

March 10: harry collected $30,000 from clients toward the outstanding accounts receivable balance.

May 13: Harry received cash payments totaling $270,000 for legal services-$55,000 was for services previously billed to customers on February 12 and the remainder was for services provided in May not yet recorded.

June 10: Harry purchased office supplies in the amount of $25,000, all on credit.

July 15: Harry paid wages of $24,000 in cash to office staff workers.

August 8: Harry paid off the $25000 balance owed to a supplier for the purchase made June 10.

September 3:Harry and Sons’ purchased $5,000 of office supplies in cash.

September 20: The company paid $14,000 cash for utilities.

October 1: Harry and Sons’ paid wages in the amount of $22,000 to office workers.

December 1: Harry and Sons’ received cash payments from clients in the amount of $310,000 for services to be performed in the upcoming months.

December 31: Harry declared and paid a $18,000 dividend.

*Additional Information

• Of the cash payments received from customers on December 1, half of these services were performed in December and half relates to future services to be rendered in the following year.   

• Ten months of the insurance policy expired by the end of the year.

• Depreciation for the full year should be recorded on the building purchased. the building has a 20-year life and no residual value. Depreciation will be recorded on a straight-line bases.

• A total of $12,000 of office supplies remains on hand at the end of the year.

• Interest Expense in the amount of $4,250 should be accrued on the note payable.

• Wages in the amount of $48,000 must be accrued at year end to be paid in January.

Harry’s Unadjusted Trial Balance at December 31,2018 is as follows.

Unadjusted Trial Balance

At December 31,2018

Account Debit Credit

Cash $784,000

Office Supplies 30,000

Prepaid Insurance 18,000

Building 85,000

Unearned Service Revenue $310,000

Notes Payable 85,000

Common Stock 300,000

Dividends 18,000

Service Revenue 300,000

Wage Expense 46,000

Utilites Expense 14,000

Total: $995,000 $995,000

Requirements

A) Journalize and post adjusting journal entries for Harry and Sons’.

B) Post the adjusting Journal entries to the T-accounts to obtain the adjusted balances.

C) Prepare a Single-Step Income Statement, Statement of Shareholders Equity, and a Balance Sheet.

The following are two independent situations.

Situation 1
Marin Cosmetics acquired 10% of the 212,000 shares of common stock of Martinez Fashion at a total cost of $13 per share on March 18, 2017. On June 30, Martinez declared and paid $76,400 cash dividend to all stockholders. On December 31, Martinez reported net income of $125,800 for the year. At December 31, the market price of Martinez Fashion was $14 per share.

Situation 2
Headland, Inc. obtained significant influence over Seles Corporation by buying 40% of Seles’s 31,700 outstanding shares of common stock at a total cost of $9 per share on January 1, 2017. On June 15, Seles declared and paid cash dividends of $33,100. On December 31, Seles reported a net income of $77,900 for the year.

Prepare all necessary journal entries in 2017 for both situations.(3 entries for each)

Ramtha Company bought 40% ownership in UAE company on 1-1-2017, at book value. In 2017, 2018, and 2019, UAE reported net income of $16,000, $24,000, and $ $40,000, and dividends of $30,000, $20,000, and $20,000 respectively. During the periods from 2017 to 2019 the market value of Ramtha’ investment in UAE’ stock increased by $4000 each year. The balance in Ramtha company’s investment account on December 31, 2019, was $104,000

Determine the amount that Ramtha paid for it is investment in UAE stock assuming that Ramtha accounted for it is investment using:

Fair Value Method

At the end of its fiscal year, the adjusted trial balance of Crane Company is as follows:

CRANE COMPANY Adjusted Trial Balance July 31, 2017

Debit Credit Cash $2,850 Accounts receivable 11,420 Prepaid rent 500 Supplies 750 Debt investments 8,000 Equipment 19,950 Accumulated depreciation—equipment $5,700 Patents 18,300 Accounts payable 4,265 Interest payable 750 Unearned revenue 2,050 Notes payable (due on July 1, 2019) 45,300 B. Crane, capital 28,285 B. Crane drawings 16,900 Service revenue 74,100 Interest revenue 320 Depreciation expense 2,850 Interest expense 3,000 Rent expense 18,550 Salaries expense 36,850 Supplies expense 20,850 $160,770 $160,770 Prepare the closing entries. (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.) Date Account Titles and Explanation Debit Credit July 31 (To close revenue accounts) July 31 (To close expense accounts) July 31 (To close profit to capital) July 31 (To close drawings account)

Leighton Beridon owns "Jeemp Farms", located near Weimar, TX. The farm produces pecan trees and sod. He has so many orders from the Houston metropolitan area that he is able to sell all his inventory each year, but he is not netting as much as he has in past years. His daughter, Liesl Beridon, came home from college over Thanksgiving and mentioned ABC costing, which she learned about in her cost accounting class. Mr. Beridon does not really know what ABC costing is and is skeptical as to whether it would be right for his business. He has hired your company to educate him about ABC and whether or not he should use an ABC system. Over the next few weeks, you will work towards helping Mr. Beridon decide what is the best route for his company to take. Shortly after you get started, Mr. Beridon sends you an email stating that he feels he needs to discontinue the sod portion of his business and focus on his tree sector, as he can charge more per tree than he can charge for a foot of sod. He sends you an email stating, "I can charge so much more for a tree than a foot of grass. Therefore, I am planning on discontinuing the sod portion of the business immediately as I make so much more on the trees! I am going to plant all my sod acres with trees". Write a 700- to 1,050-word paper plan for your boss explaining how you will analyze Jeemp Farms. Include the following: Prepare an argument convincing him to hold off on his decision and see the results of your analysis first. As you have not had time to do any analysis yet, you need to convince Mr. Beridon to wait on whether to discontinue his sod business. Project potential benefits Mr. Beridon could gain from using an ABC system. Explain how ABC creates these benefits. Your team is planning on conducting an analysis of whether ABC would be beneficial to Mr. Beridon. Create a process for conducting this analysis. Include the following:

How could you apply the data in the company's general ledger?

We really need to get this new material-handling equipment in operation just after the new year begins. I hope we can finance it largely with cash and marketable securities, but if necessary we can get a short-term loan down at MetroBank.” This statement by Beth Davies-Lowry, president of Intercoastal Electronics Company, concluded a meeting she had called with the firm’s top management. Intercoastal is a small, rapidly growing wholesaler of consumer electronic products. The firm’s main product lines are small kitchen appliances and power tools. Marcia Wilcox, Intercoastal’s General Manager of Marketing, has recently completed a sales forecast. She believes the company’s sales during the first quarter of 20x1 will increase by 10 percent each month over the previous month’s sales. Then Wilcox expects sales to remain constant for several months. Intercoastal’s projected balance sheet as of December 31, 20x0, is as follows:

Jack Hanson, the assistant controller, is now preparing a monthly budget for the first quarter of 20x1. In the process, the following information has been accumulated:

1. Projected sales for December of 20x0 are $400,000. Credit sales typically are 70 percent of total sales. Intercoastal’s credit experience indicates that 20 percent of the credit sales are collected during the month of sale, and the remainder are collected during the following month.
2. Intercoastal’s cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 30 percent of each month’s purchases are paid during the month of purchase. The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, the firm attempts to have inventory at the end of each month equal to half of the next month’s projected cost of goods sold.
3. Hanson has estimated that Intercoastal’s other monthly expenses will be as follows:

In addition, sales commissions run at the rate of 2 percent of sales.

4. Intercoastal’s president, Davies-Lowry, has indicated that the firm should invest $120,000 in an automated inventory-handling system to control the movement of inventory in the firm’s warehouse just after the new year begins. These equipment purchases will be financed primarily from the firm’s cash and marketable securities. However, Davies-Lowry believes that Intercoastal needs to keep a minimum cash balance of $20,000. If necessary, the remainder of the equipment purchases will be financed using short-term credit from a local bank. The minimum period for such a loan is three months. Hanson believes short-term interest rates will be 10 percent per year at the time of the equipment purchases. If a loan is necessary, Davies-Lowry has decided it should be paid off by the end of the first quarter if possible.
5. Intercoastal’s board of directors has indicated an intention to declare and pay dividends of $30,000 on the last day of each quarter.
6. The interest on any short-term borrowing will be paid when the loan is repaid. Interest on Intercoastal’s bonds is paid semiannually on January 31 and July 31 for the preceding six-month period.
7. Property taxes are paid semiannually on February 28 and August 31 for the preceding six-month period.

PLEASE PREPARE THE FOLLOWING:

1. Sales budget:

2. Cash receipts budget:

3. Purchases budget:

4. Cash disbursements budget:

5. Complete the first three lines of the summary cash budget. Then do the analysis of short-term financing needs in requirement (6). Then finish requirement (5).

6. Calculation of required short-term borrowing.

7. Prepare Intercoastal Electronics’ budgeted income statement for the first quarter of 20x1. (Ignore income taxes.)

8. Prepare Intercoastal Electronics’ budgeted statement of retained earnings for the first quarter of 20x1.

9. Prepare Intercoastal Electronics’ budgeted balance sheet as of March 31, 20x1. (Hint: On March 31, 20x1, Bond Interest Payable is $3,600 and Property Taxes Payable is $600.)

Outback Outfitters sells recreational equipment. One of the company’s products, a small camp stove, sells for $120 per unit. Variable expenses are $84 per stove, and fixed expenses associated with the stove total $158,400 per month. Required: 1. What is the break-even point in unit sales and in dollar sales? 2. If the variable expenses per stove increase as a percentage of the selling price, will it result in a higher or a lower break-even point? (Assume that the fixed expenses remain unchanged.) 3. At present, the company is selling 13,000 stoves per month. The sales manager is convinced that a 10% reduction in the selling price would result in a 25% increase in monthly sales of stoves. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes. 4. Refer to the data in Required 3. How many stoves would have to be sold at the new selling price to attain a target profit of $71,000 per month?

1. An arrangement has been made with the local bank that if ToyWorks maintains a minimum balance of $20,000 in their bank account, they will be given a line of credit at a preferred rate of 6% per annum. All borrowing is considered to happen on the first day of the month, repayments are on the last day of the month. All borrowings and repayments from the bank should be in multiples of $1,000 and interest must be paid at the end of each month. Interest is calculated on the balance at the beginning of the month, which includes any amounts borrowed that month.

Complete the financing option for the company

The following income statement and information about changes in noncash current assets and current liabilities are reported.

SONAD COMPANY Income Statement For Year Ended December 31, 2017 Sales $ 2,177,000 Cost of goods sold 1,066,730 Gross profit 1,110,270 Operating expenses Salaries expense $ 298,249 Depreciation expense 52,248 Rent expense 58,779 Amortization expenses–Patents 6,531 Utilities expense 23,947 439,754 670,516 Gain on sale of equipment 8,708 Net income $ 679,224 Changes in current asset and current liability accounts for the year that relate to operations follow. Accounts receivable $ 31,350 increase Accounts payable $ 12,175 decrease Inventory 11,400 increase Salaries payable 1,200 decrease Required: Prepare only the cash flows from operating activities section of the statement of cash flows using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Creative Computing sells a tablet computer called the Protab. The $920 sales price of a Protab Package includes the following: One Protab computer. A 6-month limited warranty. This warranty guarantees that Creative will cover any costs that arise due to repairs or replacements associated with defective products for up to six months. A coupon to purchase a Creative Probook e-book reader for $400, a price that represents a 50% discount from the regular Probook price of $800. It is expected that 25% of the discount coupons will be utilized. A coupon to purchase a one-year extended warranty for $60. Customers can buy the extended warranty for $60 at other times as well. Creative estimates that 35% of customers will purchase an extended warranty. Creative does not sell the Protab without the limited warranty, option to purchase a Probook, and the option to purchase an extended warranty, but estimates that if it did so, a Protab alone would sell for $900. All Protab sales are made in cash. Required: 1. & 2. Indicated below whether each item is a separate performance obligation and allocate the transaction price of 90,000 Protab Packages to the separate performance obligations in the contract. 3. Prepare a journal entry to record sales of 90,000 Protab Packages (ignore any sales of extended warranties).

The Timberland Lumber Company had the following historical accounting data, per 100 board feet, concerning one of its products in the Sawmill Division:

The historical data is based on an average volume per period of 20,000 board feet. The shelving is normally transferred internally from the Sawmill Division to the Finishing Division. Timberland may also sell the shelving externally for $90 per 100 board feet. The divisions are taxed at identical rates.

Which of the following transfer pricing methods would lead to the highest Finishing Division income if 10,000 board feet are produced and transferred in entirety this period from Sawmill to Finishing?

Nash Company sells one product. Presented below is information for January for Nash Company.

Jan. 1 Inventory 122 units at $4 each

4 Sale 101 units at $8 each

11 Purchase 164 units at $6 each

13 Sale 132 units at $9 each

20 Purchase 169 units at $6 each

27 Sale 106 units at $10 each

Nash uses the FIFO cost flow assumption. All purchases and sales are on account.

1. Assume Nash uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record cost of goods sold. A physical count indicates that the ending inventory for January is 116 units.

- Compute gross profit using the periodic system.     Gross profit=?

2. Assume Nash uses a perpetual system. Prepare all necessary journal entries.

- Compute gross profit using the periodic system.       Gross profit=?

Could explain more about how to calculate on part 2 about how to record sale and how to record the cost of inventory?

The following information is related to Buffalo Company for 2017.

Buffalo Company decided to discontinue its entire wholesale operations (considered a discontinued operation) and to retain its manufacturing operations. On September 15, Buffalo sold the wholesale operations to Rogers Company. During 2017, there were 490,600 shares of common stock outstanding all year.

Prepare a multistep income statement.

Campbell Boot Co. sells men’s, women’s, and children’s boots. For each type of boot sold, it operates a separate department that has its own manager. The manager of the men’s department has a sales staff of nine employees, the manager of the women’s department has six employees, and the manager of the children’s department has three employees. All departments are housed in a single store. In recent years, the children’s department has operated at a net loss and is expected to continue to do so. Last year’s income statements follow:

Required

1. a. Calculate the contribution margin. Determine whether to eliminate the children’s department.

2. b-1. Calculate the net income for the company as a whole with the children's department.

3. b-2. Confirm the conclusion you reached in Requirement a by preparing income statements for the company as a whole with and without the children’s department.

4. c. Eliminating the children’s department would increase space available to display men’s and women’s boots. Suppose management estimates that a wider selection of adult boots would increase the store’s net earnings by $36,000. Would this information affect the decision that you made in Requirement a?