Exercise 7-15 Manufacturing: Direct materials, direct labor, and overhead budgets LO P1

MCO Leather Goods manufactures leather purses. Each purse requires 3 pounds of direct materials at a cost of $4 per pound and 0.7 direct labor hours at a rate of $10 per hour. Variable manufacturing overhead is charged at a rate of $2 per direct labor hour. Fixed manufacturing overhead is $11,000 per month. The company’s policy is to end each month with direct materials inventory equal to 20% of the next month’s materials requirement. At the end of August the company had 4,580 pounds of direct materials in inventory. The company’s production budget reports the following.

(1) Prepare direct materials budgets for September and October.
(2) Prepare direct labor budgets for September and October.
(3) Prepare factory overhead budgets for September and October.

Planet Corporation acquired 90 percent of Saturn Company’s voting shares of stock in 20X1. During 20X4, Planet purchased 40,000 Playday doghouses for $24 each and sold 25,000 of them to Saturn for $30 each. Saturn sold 18,000 of the doghouses to retail establishments prior to December 31, 20X4, for $45 each. Both companies use perpetual inventory systems.

Required:
a. Prepare all journal entries Planet recorded for the purchase of inventory and resale to Saturn Company in 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record the purchase of inventory.

Record the sales of the Playday doghouses.

Record the cost of goods sold.

b. Prepare the journal entries Saturn recorded for the purchase of inventory and resale to retail establishments in 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record the purchase of inventory.

Record the sales of the Playday doghouses.

Record the cost of goods sold.

c. Prepare the worksheet consolidation entry(ies) needed in preparing consolidated financial statements for 20X4 to remove the effects of the intercompany sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record the consolidation entry.

Bramble, Inc. prepared the following cash budget for the fourth quarter. Fill in the missing amounts, assuming that Bramble desires to maintain a $15,000 minimum monthly cash balance and all equipment was purchased during December. Any required borrowings and repayments must be made in even increments of $1,000. (Enter answers in necessary fields only. Leave other fields blank. Do not enter 0.)

Question: Describe two limitations, both actual and potential of “service efforts and accomplishments” (SEA) indicators, and describe how they might be overcome.

Toronto Corporation records its sales at their gross amount. On December 31, 2015, Toronto Corporation’s balance sheet included the following:

Trade accounts receivable                                $630,000

Allowance for doubtful accounts                       (49,500)

Accounts receivable, net                         $580,500

During 2016, the following transactions occurred:

1. New sales on account                                                                         $967,000
2. Collections on past credit sales                                                      913,000
3. Accounts receivable written off as uncollectible                                31,400
4. Collection of accounts previously written off as uncollectible                 1,200
5. At year-end, the company estimated that a balance of $45,700

is needed in its allowance for doubtful accounts

Required:

1. Prepare journal entries to record each of the above transactions

2. Compute the net realizable value of accounts receivable that should appear on Toronto’s December 31, 2016 balance sheet

Part B

Maxwell Corporation factored, with recourse, $300,000 of accounts receivable with Huskie Financing. The finance charge is 4%, and 6% was retained to cover sales discounts, sales returns, and sales allowances. Maxwell estimates the recourse obligation at $5,800.

Required:

Prepare Maxwell’s journal entry to record this factoring of its accounts receivable.

Part C

On December 31, 2016, Geosue Company finished consultation services for Nolan Corporation and accepted in exchange a promissory note with a face value of $900,000, a due date of December 31, 2019, and a stated rate of 7%, with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. However, a similar note is considered to have a market rate of interest of 9%.

Required:

1. Determine the present value of the note.

2. Prepare an effective interest amortization schedule for Geosue relative to this note. (Round to whole dollars.)

Part D

Nicholas Company loaned $68,587 to Nathan, Inc. in exchange for Nathan’s 2-year, $80,000, zero-interest-bearing note. Nathan’s incremental borrowing rate for comparable debt is 8%.

Required:

1. Prepare an effective interest amortization schedule for Nicholas relative to this note. (Round to whole dollars.)

2. Prepare Nicholas’ journal entries for the initial loan transaction, recognition of interest each year, and the collection of the note at maturity.

Our Module 2 discussion will focus on familiarizing yourself with someone in the accounting profession.

The purpose of this assignment is to get a picture of the various roles managers play and the skills required to perform effectively in an accounting role.

You should choose to interview someone who has been in the accounting field for at least 2 years, employed full time. Please use the questions below, but feel free to add your own. Ask frequently for examples which illustrate the interviewee’s experience. When an interviewee tells you an interesting story, make sure to ask further questions so you understand how this experience is related to their work and their skills.

Take notes during the interview and then summarize what you learned. Do not provide a verbatim account of the interview! Rather describe what you learned about he accounting field, the skills needed to be successful, what challenges they face, etc. Start the interview by having the individual describe their organization, their specific role and their background briefly. Then use these questions to follow up:

1. Describe a typical day at work.

2. What are the critical skills needed to be successful in your line of work?

3. Name one recent change you had to deal with at work and describe how you managed that change.

4. What do you like best about your work in the field of accounting? Like the least?

5. What would you like to learn more about that would help you to continue to improve in your job?

6. What one piece of "advice" would you give to someone considering a career in accounting?

Summarize what you learned by conducting this interview. Start your posting by briefly describing your interviewee's role and the organization they work for as well as their background (education/formal training, previous jobs, etc.). Then, list each question and provide your interviewee's answer.:

Activity-Based Costing, Unit Cost, Ending Work-in-Process Inventory Salazar Company is a job-order costing firm that uses activity-based costing to apply overhead to jobs. Salazar identified three overhead activities and related drivers. Budgeted information for the year is as follows: Activity Cost Driver Amount of Driver Setting up design $168,000 Setups 1,200 Purchasing 186,000 Number of parts 15,000 Other overhead 415,000 Direct labor hours 50,000 Salazar worked on five jobs in March. Data are as follows: Job 15 Job 16 Job 17 Job 18 Job 19 Balance, March 1 $34,600 $39,890 $24,090 $0 $0 Direct materials $28,000 $37,900 $25,350 $11,000 $13,550 Direct labor $10,000 $8,500 $23,000 $12,700 $8,000 Setups 20 14 35 8 15 Number of parts 150 180 200 500 300 Direct labor hours 650 580 1,600 870 520 By March 31, Jobs 15, 16, and 17 were completed and sold. The remaining jobs were in process. Required: 1. Calculate the activity rates for each of the three overhead activities. If required, round your answers to the nearest cent. Setup rate $ 140 per set up Purchasing rate $ 12.4 per part Other overhead rate $ 8.3 per direct labor hour Feedback 1. Remember OH rate = estimated annual OH ÷ by the related driver. 2. Prepare job-order cost sheets for each job showing all costs through March 31. What is the cost of each job by the end of March?. If an amount is zero, enter "0". Salazar Company Job-Order Cost Sheets Job 15 Job 16 Job 17 Job 18 Job 19 Balance, March 1 $ 34,600 $ 39,890 $ 24,090 $ 0 $ 0 Direct materials 28,000 37,900 25,350 11,000 13,550 Direct labor 10,000 8,500 23,000 12,700 8,000 Applied overhead: Setups Purchasing Other overhead Total cost $ $ $ $ $ Feedback 2. The job-order cost sheet must include a unique number or name for this particular job, all direct costs, and all overhead costs associated with the job. 3. Calculate the balance in Work in Process on March 31. $ 4. Calculate the cost of goods sold for March. $

Presented Below is Information related to Matrix Company at December 31,2018 the end of its first year of operations:

Account Balance

Question 1: What is income from continuing operations?

Question 2: What is the difference between continuing operations and net income?

Kollar Corp.’s transactions for the year ended December 31, Year 6, included the following:

Kollar’s net cash used in financing activities for Year 6 was

A $450,000

B $500,000

C $250,000

D $50,000

The following is the balance sheet of Korver Supply Company at December 31, 2020 (prior year). KORVER SUPPLY COMPANY Balance Sheet At December 31, 2020 Assets Cash $120,000 Accounts receivable 300,000 Inventory 200,000 Furniture and fixtures (net)  150,000 Total assets $770,000 Liabilities and Shareholders’ Equity Accounts payable (for merchandise) $190,000 Notes payable 200,000 Interest payable 6,000 Common stock 100,000 Retained earnings  274,000 Total liabilities and shareholders’ equity $770,000 Transactions during 2021 (current year) were as follows: 1. Sales to customers on account $800,000 2. Cash collected from customers 780,000 3. Purchase of merchandise on account 550,000 4. Cash payment to suppliers 560,000 5. Cost of merchandise sold 500,000 6. Cash paid for operating expenses 160,000 7. Cash paid for interest on notes 12,000 Additional Information: The notes payable are dated June 30, 2020, and are due on June 30, 2022. Interest at 6% is payable annually on June 30. Depreciation on the furniture and fixtures for 2021 is $20,000. The furniture and fixtures originally cost $300,000.

Required: Prepare a classified balance sheet at December 31, 2021, by updating ending balances from 2020 for transactions during 2021 and the additional information. The cost of furniture and fixtures and their accumulated depreciation are shown separately.

Acme Company Balance Sheet As of January 5, 2019 (amounts in thousands)

Cash 9,100                                              Accounts Payable 1,900

Accounts Receivable 4,400                        Debt 2,400

Inventory 4,800                                         Other Liabilities 600

Property Plant & Equipment 15,600            Total Liabilities 4,900

Other Assets 2,600                                  Paid-In Capital 6,900

                                                               Retained Earnings 24,700

                                                              Total Equity 31,600

Total Assets 36,500                                 Total Liabilities & Equity 36,500

Update the balance sheet above to reflect the transactions below, which occur on January 6, 2019

1. Sell product for $25,000 with historical cost of $20,000

2. Sell product for $30,000 with historical cost of $24,000

3. Sell product for $40,000 with historical cost of $32,000

What is the final amount in Retained Earnings?

Please specify your answer in the same units as the balance sheet.

Ahmed’s income statement is as follows:

1. If Sales increase by $10,000, what is the new operating income?
2. Calculate the Break-even point in units for Herman.
3. Herman wants to earn operating income of $20,000. What amount of sales dollars will he need in to accomplish this goal?
4. Herman wants to earn net income (after taxes) of $35,000 and his tax rate is 30%. What amount of sales dollars will he need to accomplish this goal?

Chamberlain Enterprises Inc. reported the following receivables in its December 31, 2021, year-end balance sheet:

Additional Information:

1. The notes receivable account consists of two notes, a $100,000 note and a $270,000 note. The $100,000 note is dated October 31, 2021, with principal and interest payable on October 31, 2022. The $270,000 note is dated June 30, 2021, with principal and 6% interest payable on June 30, 2022.
2. During 2022, sales revenue totaled $1,450,000, $1,335,000 cash was collected from customers, and $33,000 in accounts receivable were written off. All sales are made on a credit basis. Bad debt expense is recorded at year-end by adjusting the allowance account to an amount equal to 10% of year-end accounts receivable.
3. On March 31, 2022, the $270,000 note receivable was discounted at the Bank of Commerce. The bank's discount rate is 10%. Chamberlain accounts for the discounting as a sale.

Required:
In addition to sales revenue, what revenue and expense amounts related to receivables will appear in Chamberlain’s 2022 income statement?
What amounts will appear in the 2022 year-end balance sheet for accounts receivable and Calculate the receivables turnover ratio for 2022.

Square Manufacturing is considering investing in a robotics manufacturing line. Installation of the line will cost an estimated $10.5 million. This amount must be paid immediately even though construction will take three years to complete (years 0, 1, and 2). Year 3 will be spent testing the production line and, hence, it will not yield any positive cash flows. If the operation is very successful, the company can expect after-tax cash savings of $7.5 million per year in each of years 4 through 7. After reviewing the use of these systems with the management of other companies, Square’s controller has concluded that the operation will most probably result in annual savings of $4.9 million per year for each of years 4 through 7. However, it is entirely possible that the savings could be as low as $3.3 million per year for each of years 4 through 7. The company uses a 14 percent discount rate. Use Exhibit A.8.

Required:

Compute the NPV under the three scenarios. (Round PV factor to 3 decimal places. Enter your answers in thousands of dollars. Negative amounts should be indicated by a minus sign.)

Hank, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December, he performed $28,000 of legal services for a client. Hank typically requires his clients to pay his bills immediately upon receipt. Assume his marginal tax rate is 32 percent this year and will be 35 percent next year, and that he can earn an after-tax rate of return of 12 percent on his investments. Use Exhibit 3.1.

a. What is the after-tax income if Hank sends his client the bill in December?

b. What is the after-tax income if Hank sends his client the bill in January? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

EXHIBIT 3-1 Present Value of a Single Payment at Various Annual Rates of Return
4%   5%   6%   7%   8%   9%   10%   11%   12%
Year 1   .962   .952   .943   .935   .926   .917   .909   .901   .893
Year 2   .925   .907   .890   .873   .857   .842   .826   .812   .797
Year 3   .889   .864   .840   .816   .794   .772   .751   .731   .712
Year 4   .855   .823   .792   .763   .735   .708   .683   .659   .636
Year 5   .822   .784   .747   .713   .681   .650   .621   .593   .567
Year 6   .790   .746   .705   .666   .630   .596   .564   .535   .507
Year 7   .760   .711   .665   .623   .583   .547   .513   .482   .452
Year 8   .731   .677   .627   .582   .540   .502   .467   .434   .404
Year 9   .703   .645   .592   .544   .500   .460   .424   .391   .361
Year 10   .676   .614   .558   .508   .463   .422   .386   .352   .322
Year 11   .650   .585   .527   .475   .429   .388   .350   .317   .287
Year 12   .625   .557   .497   .444   .397   .356   .319   .286   .257
Year 13   .601   .530   .469   .415   .368   .326   .290   .258   .229
Year 14   .577   .505   .442   .388   .340   .299   .263   .232   .205
Year 15   .555   .481   .417   .362   .315   .275   .239   .209   .183

c. Should Hank send his client the bill in December or January?

• December

• January

d. What is the after-tax income if Hank expects his marginal tax rate to be 24 percent next year and sends his client the bill in January? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

e. Should Hank send his client the bill in December or January if he expects his marginal tax rate to be 32 percent this year and 24 percent next year?