Crazy Computer Store sells a back-to-school bundle that consists of a laptop computer, printer, and tablet to a customer for $2,400. Crazy Computer also sells the products on a stand-alone basis for the following amounts: the laptop for $1,800, the printer for $350, and the tablet for $500. The customer receives a $250 discount for buying the three products as a bundle. Crazy Computer normally sells the laptop and printer as a package for a price of $1,900. The tablet is normally not discounted.
Required:
1. | How should the transaction price be allocated among the products? |
2. | Prepare the journal entry when Crazy sells a back-to-school bundle for cash. |
How should the transaction price be allocated among the products?
Laptop | $____ |
Printer | $____ |
Tablet | $____ |
In: Accounting
Woodmier Lawn Products introduced a new line of commercial
sprinklers in 2017 that carry a one-year warranty against
manufacturer’s defects. Because this was the first product for
which the company offered a warranty, trade publications were
consulted to determine the experience of others in the industry.
Based on that experience, warranty costs were expected to
approximate 3% of sales. Sales of the sprinklers in 2017 were
$2,850,000. Accordingly, the following entries relating to the
contingency for warranty costs were recorded during the first year
of selling the product:
Accrued liability and expense | ||
Warranty expense (3% × $2,850,000) | 85,500 | |
Estimated warranty liability | 85,500 | |
Actual expenditures (summary entry) | ||
Estimated warranty liability | 39,330 | |
Cash, wages payable, parts and supplies, etc. | 39,330 | |
In late 2018, the company's claims experience was evaluated and it
was determined that claims were far more than expected—4% of sales
rather than 3%.
Required:
1. Assuming sales of the sprinklers in 2018 were
$3,950,000 and warranty expenditures in 2018 totaled $98,500,
prepare any journal entries related to the warranty.
2. Assuming sales of the sprinklers were
discontinued after 2017, prepare any journal entries in 2018
related to the warranty.
In: Accounting
Lemon Ltd. offers executive training seminars using, in part, recorded lectures of a well-known speaker. The agreement calls for Lemon to pay a royalty for the use of the lectures. The lecturer's agent offers Lemon two options. The first option is revenue-based and Lemon agrees to pay 25 percent of its revenues to the speaker. The second option is a flat rate of $358,800 annually for the use of the lectures in these seminars. The royalty agreement will run one year and the royalty option chosen cannot be changed during the agreement. All other royalty terms are the same.
Lemon charges $1,600 for the seminar and the variable costs for the seminar (excluding any royalty) is $400. Annual fixed costs (excluding any royalties) are $538,200.
Required:
a. What is the annual break-even level assuming:
b. At what annual volume would the operating profit be the same regardless of the royalty option chosen?
c. Assume an annual volume of 1,500 seminars. What is the operating leverage assuming:
d. Assume an annual volume of 1,500 seminars. What is the margin of safety assuming:
In: Accounting
During 2018, WMC Corporation discovered that its ending
inventories reported on its financial statements were misstated by
the following amounts:
2016 | understated by | $ | 132,000 | |
2017 | overstated by | 174,000 | ||
WMC uses the periodic inventory system and the FIFO cost
method.
Required:
1-a. Determine the effect of 2016 errors on
retained earnings at January 1, 2018, before any adjustments.
(Ignore income taxes.)
1-b. Determine the effect of 2017 errors on
retained earnings at January 1, 2018, before any adjustments.
(Ignore income taxes.)
2. Prepare a journal entry to correct the error
made in 2017.
In: Accounting
Wardell Company purchased a mini computer on January 1, 2016, at
a cost of $45,100. The computer has been depreciated using the
straight-line method over an estimated five-year useful life with
an estimated residual value of $4,600. On January 1, 2018, the
estimate of useful life was changed to a total of 10 years, and the
estimate of residual value was changed to $900.
Required:
1. Prepare the appropriate adjusting entry for
depreciation in 2018 to reflect the revised estimate.
2. Prepare the appropriate adjusting entry for
depreciation in 2018 to reflect the revised estimate. Assuming that
the company uses the sum-of-the-years'-digits method instead of the
straight-line method.
In: Accounting
Berry Company is an architectural firm located in Toronto, Ontario. The company works with small and medium-size construction businesses to prepare building plans according to client contract. Berry employs 10 professionals and 5 staff. The following data are provided for last year:
Number of designs completed and sold 700
Beginning inventory of direct materials $20,000
Beginning inventory of designs in process $60,000
Ending inventory of direct materials $0
Ending inventory of designs in process $100,000
Purchases, direct materials $40,000
Direct labour $800,000
Manufacturing overhead $100,000
Administrative expense $150,000
Selling expense $60,000
Required:
2. Assume that the average fee for a design is $2,100 Prepare an income statement for Berry Company.
3. Refer to the cost of services sold (calculated in Requirement 1). What is the dominant cost Will this always be true of service organizations? If not, provide an example of an exception
4. Why does Berry Company show zero inventory of finished plans? What change(s) in the company could result in a positive finished goods inventory?
In: Accounting
Please answer all questions
Select the best answer for each of the following unrelated items.
In: Accounting
What will be the net income or loss on the income statement assuming a tax rate of 30.00% | |||||
(identify if the value will be a net income or a net loss) |
Accounts as shown on a Trial Balance | ||
on December 31, 2013 | ||
DB | CR | |
Accounts Payable | 7,600.00 | |
Accounts Receivable | 9,000.00 | |
Accumulated Amortization | 1,000.00 | |
Accumulated Depreciation | 2,000.00 | |
Add'l Paid-in-Capital | 25,905.00 | |
Bond Investment | 13,000.00 | |
Cash | 22,500.00 | |
Common Stock | 5,000.00 | |
Cost of Goods Sold | 125,000.00 | |
Current Portion of Notes Payable | 6,500.00 | |
Discontinued Operations, gross of tax | 10,000.00 | |
Furniture, Fixtures & Equipment | 25,500.00 | |
Gain/Loss on Asset Disposal | 700.00 | |
Income Tax Expense | ? | |
Interest Expense | 800.00 | |
Interest Payable | 800.00 | |
Inventory | 22,000.00 | |
Notes Payable | 13,000.00 | |
Operating Expenses | 66,050.00 | |
Sales | 250,000.00 | |
Trademark | 4,000.00 |
In: Accounting
Haas Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:
Variable costs per unit: | ||
Manufacturing: | ||
Direct materials | $ | 28 |
Direct labor | $ | 20 |
Variable manufacturing overhead | $ | 4 |
Variable selling and administrative | $ | 3 |
Fixed costs per year: | ||
Fixed manufacturing overhead | $ | 210,000 |
Fixed selling and administrative expenses | $ | 150,000 |
During its first year of operations, Haas produced 60,000 units and sold 60,000 units. During its second year of operations, it produced 75,000 units and sold 50,000 units. In its third year, Haas produced 40,000 units and sold 65,000 units. The selling price of the company’s product is $61 per unit.
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.
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.
In: Accounting
List 5 ways companies increase their income that is not per GAAP and may be construed as fraudulent.
In: Accounting
Implementation of Activity-based costing (ABC) The case of a Juice Company John Orland, controller of the Juice Company, has been concerned over the erosion of the recent financial results especially for the standard flavors (A and B) which used to earn a hefty 20 per cent of profit margin.
Recently, Dan Brun, the sales manager has expanded the lines of products to encompass new flavors (B & C) which were in high demand by customers who were willing to pay 5 to 10 % premium.
Richard Dunn, the manufacturing manager, was also excited to introduce the new flavors since they were expected to generate higher margins while using the same technology as standard flavors. However, he noticed that the introduction of new flavors added some technical complexities to the production process. For instance, unlike Flavors A & B, which were produced in huge volume and in long production runs, difficulties started to arise with the new flavors which were produced in smaller batches but required more changeovers and more production runs (see Exhibit 3).
The Juice Company produced the different flavors in the same factory. Each flavor had a bill of materials that determines the quantity and cost of direct materials used for the production of each flavor. Additionally, a cost sheet was used to track the direct labor expenses incurred at each operating step for each of the four flavors. All overhead costs were grouped at the plant level and allocated to each flavor on the basis of direct labor cost. The rate was set at 400 % of direct labor costs (see Exhibit 2).
John was intrigued by the behavior of their main competitors who were more interested in competing in, what appears according to the company’s current costing system, to be low profit margin flavors (A and B) than in high profit margins (Flavors C &D). Such behavior has led the controller to question the accuracy of that costing system and to conclude that the current method of allocation of indirect costs is distorting their product costs thereby causing inappropriate pricing.
To remedy the distortions caused by the traditional method of costing based on one single cost pool of indirect costs, John decided to implement Activity-based costing (ABC) method which focuses on the activities, how they are performed, and the resources they consumed and to assign activities costs to products based on how much demand each of these products puts on these activities. After careful analysis of the company’s operations, the controller identified four main activities: process production run, set up equipment, manage products, and run machines. The demand on these activities by different flavors is illustrated in Exhibit 3.
He began by identifying the resources that were being consumed by activities. These resources were grouped in six categories as shown in Exhibit 1. 2
After interviewing the department heads in charge of support staff wages and benefits and insurance, he found out that their services are used by three activities: process production run (40%), set up (40%), and the remaining 20 % consumed to manage products.
Next, the controller tackled the information system item and determines, after interview with the head of the information system department, that process production runs accounts for 30 % of their services while 70 % are used to manage products.
The results of his investigations about the usage of the equipment revealed that it was entirely used to run machines. Maintenance services were shared equally between the production run activity and run machine activity. Finally, utility was shared equally by the four activities.
Questions
1. Describe the problem the company is facing
. Calculate the costs for the four favors using ABC
3. Explain why, in this case, the ABC costs are different from those calculated under the traditional method based one single cost pool of indirect costs and provide examples from the case that support your analysis.
4. What would you do as a manager?
Exhibit 1
Exhibit 1 Resources Used Costs of Resources
Support staff wages $ 30,000
Benefits and insurances 12,000
Information Systems 10,000
Equipment 7,000
Maintenance 4,000
Utilities 3,000
Total $ 66,000
Exhibit 2:
Traditional Income Statement
Flavor A Flavor B Flavor C Flavor D Total
Sales $ 86,000.00 $ 52,000 $ 16,000 $ 3,600 $157,600.00
Direct Material costs 28000 20000 5500 400 53900
Direct labor costs 9500 5000 1500 500 16500
Overhead costs at 400%
of Direct labor costs 38000 20000 6000 2000 66000
Operating Income $10,500.00 $7,000.00 $ 3,000.00 $ 700.00 $ 21,200.00
Profit margin 12% 13% 19% 19% 13%
Exibit 3: direct costs and and activity cost drivers
Flavor A Flavor B Flavor C Flavor D Total
Sales in units 60,000 50,000 10,000 2,000 122,000
Sales in Dlollars $ 86,000.00 $ 52,000 $ 16,000 $ 3,600 $ 157,600.00
Unit selling price $ 1.43 $ 1.04 $ 1.60 $ 1.80
Machine hours per unit 0.1 0.1 0.1 0.1 12200
Production runs 50 50 38 12 150
Set up times ( hours) 150 120 200 100 570
Manage products 1 1 1 1 4
In: Accounting
The following balance sheet items, listed in alphabetical order, are available from the records of Ruth Corporation at December 31, 2017: Accounts payable $16,590 Income taxes payable $5,900 Accounts receivable 21,240 Interest payable 1,415 Accumulated depreciation - automobiles 20,870 Inventory 43,765 Accumulated depreciation - buildings 43,730 Land 269,000 Automobiles 104,350 Long-term investments 82,235 Bonds payable, due December 31, 2021 148,000 Notes payable, due June 30, 2018 9,000 Buildings 218,650 Office supplies 2,325 Capital stock, $10 par value 150,000 Paid-in capital in excess of par value 55,000 Cash 12,240 Patents 43,000 Prepaid rent 1,615 Retained earnings 343,440 Salaries and wages payable 4,475 Required: 1. Prepare in good form a classified balance sheet as of December 31, 2017. Ruth Corporation Balance Sheet December 31, 2017 Assets Current assets: $ Total current assets $ Property, plant, and equipment: $ $ $ Total property, plant, and equipment Intangible assets: Total assets $ Liabilities Current liabilities: $ Total current liabilities $ Long-term debt: Total liabilities $ Stockholders' Equity Contributed capital: $ Total contributed capital $ Total stockholders' equity Total liabilities and stockholders' equity $ 2. Compute Ruth's current ratio. Round your answer to two decimal places. to 1 3. On the basis of your answer to (2), does Ruth appear to be liquid?
In: Accounting
Identify major threats in the revenue cycle, and evaluate the adequacy of various control procedures for dealing with those threats.
In: Accounting
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that date, Abernethy has the following trial balance:
Debit | Credit | ||||
Accounts payable | $ | 50,300 | |||
Accounts receivable | $ | 47,500 | |||
Additional paid-in capital | 50,000 | ||||
Buildings (net) (4-year remaining life) | 201,000 | ||||
Cash and short-term investments | 61,750 | ||||
Common stock | 250,000 | ||||
Equipment (net) (5-year remaining life) | 447,500 | ||||
Inventory | 127,500 | ||||
Land | 124,000 | ||||
Long-term liabilities (mature 12/31/20) | 162,000 | ||||
Retained earnings, 1/1/17 | 514,850 | ||||
Supplies | 17,900 | ||||
Totals | $ | 1,027,150 | $ | 1,027,150 | |
During 2017, Abernethy reported net income of $97,000 while declaring and paying dividends of $12,000. During 2018, Abernethy reported net income of $141,250 while declaring and paying dividends of $48,000.
Assume that Chapman Company acquired Abernethy’s common stock for $919,830 in cash. Assume that the equipment and long-term liabilities had fair values of $471,000 and $131,120, respectively, on the acquisition date. Chapman uses the initial value method to account for its investment.
Prepare consolidation worksheet entries for December 31, 2017, and December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
1-Prepare entry S to eliminate stockholders' equity accounts of subsidiary
2-Prepare entry A to recognize allocations determined above in connection with acquisition-date fair values.
3-Prepare entry I to eliminate intra-entity dividend declarations recorded by parent as income
4-Prepare entry E to recognize 2017 amortization expense.
5-Prepare entry *C to convert parent company figures to equity method by recognizing subsidiary's increase in book value for prior year [$97,000 net income less $12,000 dividend declaration] and excess amortizations for that period [$12,420].
In: Accounting
Profit-Linked Productivity Measurement
In 20x2, Choctaw Company implements a new process affecting labor and materials.
Choctaw Company provides the following information so that total productivity can be valued:
20x1 | 20x2 | |
Number of units produced | 570,000 | 480,000 |
Labor hours used | 190,000 | 240,000 |
Materials used (lbs.) | 2,850,000 | 1,600,000 |
Unit selling price | $23 | $25 |
Wages per labor hour | $12 | $14 |
Cost per pound of material | $3.80 | $3.90 |
Required:
1. Calculate the cost of inputs in 20x2, assuming no productivity change from 20x1 to 20x2. If required, round your answers to the nearest dollar.
Cost of labor | $ |
Cost of materials | |
Total PQ cost | $ |
2. Calculate the actual cost of inputs for 20x2. If required, round your answers to the nearest dollar.
Cost of labor | $ |
Cost of materials | |
Total current cost | $ |
What is the net value of the productivity changes? If required,
round your answers to the nearest dollar.
$
How much profit change is attributable to each input's productivity change? If an item is negative, use a minus (-) sign to indicate.
Labor productivity change | $ |
Materials productivity change | $ |
3. What if a manager
wants to know how much of the total profit change from 20x1 to 20x2
is attributable to price recovery? Calculate the total profit
change.
$
Calculate the price-recovery component.
$
In: Accounting