4-5 The following unadjusted trial balance is prepared at fiscal year-end for Nelson Company. NELSON COMPANY Unadjusted Trial Balance January 31, 2017 Debit Credit Cash $ 31,200 Merchandise inventory 14,500 Store supplies 5,200 Prepaid insurance 2,800 Store equipment 42,600 Accumulated depreciation—Store equipment $ 16,000 Accounts payable 13,000 Common stock 3,800 Retained earnings 19,000 Dividends 2,100 Sales 141,750 Sales discounts 1,900 Sales returns and allowances 2,050 Cost of goods sold 38,000 Depreciation expense—Store equipment 0 Salaries expense 27,800 Insurance expense 0 Rent expense 16,000 Store supplies expense 0 Advertising expense 9,400 Totals $ 193,550 $ 193,550 Rent expense and salaries expense are equally divided between selling activities and general and administrative activities. Nelson Company uses a perpetual inventory system. Additional Information: Store supplies still available at fiscal year-end amount to $2,700. Expired insurance, an administrative expense, for the fiscal year is $1,500. Depreciation expense on store equipment, a selling expense, is $1,600 for the fiscal year. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,900 of inventory is still available at fiscal year-end. rev: 10_24_2018_QC_CS-145044 Required: 1. Using the above information prepare adjusting journal entries: 2. Prepare a multiple-step income statement for fiscal year 2017. 3. Prepare a single-step income statement for fiscal year 2017.

• 1

  Store supplies still available at fiscal year-end amount to $2,700.

• 2

  Expired insurance, an administrative expense, for the fiscal year is $1,500.

• 3

  Depreciation expense on store equipment, a selling expense, is $1,600 for the fiscal year.

• 4

  To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,900 of inventory is still available at fiscal year-end.

• Prepare a multiple-step income statement for fiscal year 2017.

  	NELSON COMPANY Income Statement For Year Ended January 31, 2017 Expense Selling expenses Total selling expenses General and administrative expenses Total general and administrative expenses Total expenses

• Prepare a single-step income statement for fiscal year 2017.

  	NELSON COMPANY Income Statement For Year Ended January 31, 2017 Expenses Total expenses

BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows:   

Required:

a. Allocate the cost of the service departments to the operating departments using the direct method. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.)

b. Allocate the cost of the service departments to the operating departments using the step method. Start with Administration. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.)

c. Allocate the cost of the service departments to the operating departments using the reciprocal method. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.)

Financial Statements and Closing Entries

The Gorman Group is a financial planning services firm owned and operated by Nicole Gorman. As of October 31, 2018, the end of the fiscal year, the accountant for The Gorman Group prepared an end-of-period spreadsheet, part of which follows:

Required:

1. Prepare an income statement.

Prepare a Retained Earnings Statement.

Prepare a balance sheet.

2. Journalize the entries that were required to close the accounts at October 31. For a compound transaction, if a box does not require an entry, leave it blank.

3. If Retained Earnings had instead decreased $30,300 after the closing entries were posted, and the dividends remained the same, what would have been the amount of net income or net loss? Enter all amounts as positive numbers.
$  

Honey Ltd, a New Zealand company, has sold US$150,000 of products to the US, to receive cash exactly one month later. At the time of sale, the spot rate of exchange is US$0.55, that is, NZ$1 buys US$0.55. Honey Ltd wishes to hedge the currency risk associated with this transaction, so on the day of the sale, the company buys a put option – that is, it buys the right to sell US$150,000 at an exercise price of US$0.57 one month later. The option costs $3,000 in cash. The relevant information is shown in the table below:

Required:

(i) In accordance with NZ IFRS 9, show the journal entry to record the sale and any additional journal entries that are required through to (and including) settlement.

(ii) What is the most that Honey Ltd can lose overall in this hedging activity (regardless of what the exchange rate is at settlement date)? Show all workings.

Dividends Per Share Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 15,000 shares of cumulative preferred 1% stock, $120 par, and 50,000 shares of $15 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $12,000; second year, $34,000; third year, $46,200; fourth year, $76,500. Compute the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter "0". 1st Year 2nd Year 3rd Year 4th Year Preferred stock (dividend per share) $ $ $ $ Common stock (dividend per share) $ $ $ $

Suppose that the 2017 actual and 2018 projected financial statements for Cramner Corp. are initially as shown in the following tables. In these tables, sales are projected to rise 35 percent in the coming year, and the components of the income statement and balance sheet that are expected to increase at the same 35 percent rate as sales are indicated with an italics font. Assuming that Cramner Corp. wants to cover the AFN with 45 percent equity, 25 percent long-term debt, and the remainder from notes payable, what amount of additional funds will they need to raise if debt carries an 8 percent interest rate?

On December 31, 2019, the Income Statement section of the worksheet is shown below. The balance of Ally Logan’s drawing account is $32,000.

Prepare the closing entries that should be made in the general journal.

Journal entry worksheet
Record entry to transfer sales, interest, purchases return and allowances and purchase discounts to income summary.
Note: Enter debits before credits.
  
Date   General Journal   Debit   Credit
Dec 31, 2019          

1. A Vehicle Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art robotic machine. They have compiled the following data for the new machine:

Cost of new machine needed                                                 $150,000

Annual net cash inflows                                                          $40,000

Salvage value of the machine in 10 years .$20,000

Useful life of the machine                                                        10 years

Required rate of return                                                                   10%

The company uses straight-line depreciation on all equipment.

a. What is the payback period for this machine? Ignore the impact of income taxes.

b. How is the payback period used in evaluating potential investments?

Aztec Company sells its product for $160 per unit. Its actual and budgeted sales follow.

All sales are on credit. Recent experience shows that 26% of credit sales is collected in the month of the sale, 44% in the month after the sale, 29% in the second month after the sale, and 1% proves to be uncollectible. The product’s purchase price is $110 per unit. 60% of purchases made in a month is paid in that month and the other 40% is paid in the next month. The company has a policy to maintain an ending monthly inventory of 23% of the next month’s unit sales plus a safety stock of 100 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,728,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $110,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $110,000, the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 14% interest rate. On May 31, the loan balance is $47,000, and the company’s cash balance is $110,000.

Required:
1. Prepare a schedule that shows the computation of cash collections of its credit sales (accounts receivable) in each of the months of June and July.
2. Prepare a schedule that shows the computation of budgeted ending inventories (in units) for April, May, June, and July.
3. Prepare the merchandise purchases budget for May, June, and July. Report calculations in units and then show the dollar amount of purchases for each month.
4. Prepare a schedule showing the computation of cash payments for product purchases for June and July.
5. Prepare a cash budget for June and July, including any loan activity and interest expense. Compute the loan balance at the end of each month.

1. A financial manager is evaluating a merger target and wishes to estimate cost and revenue synergies for years 1 and 2 (i.e., the first couple of years, post-merger). The target currently has revenues of $80, which is forecasted to grow at a rate of 9% annually over the estimated horizon of 4 years. The analyst assumes that EBITDA would be approximately 20% of revenues. Depreciation and amortization would be about $6 each year. The applicable tax rate is 25%. The analyst estimates a cost synergy of 5% and a revenue synergy of 15%.
   
   To get full credit, answers must be supported by formulas and calculations showing relevant inputs. As part of your answer, please compare and contrast the importance of cost and revenue synergies.

Three years ago, Karen Suez and her brother-in-law Reece Jones opened Gigasales Department Store. For the first 2 years, business was good, but the following condensed income statement results for 2017 were disappointing.

GIGASALES DEPARTMENT STORE

Income Statement

For the Year Ended December 31, 2017

Net sales

$518,000

Cost of goods sold

414,400

Gross profit

103,600

Operating expenses

Selling expenses

$74,000

Administrative expenses

14,800

88,800

Net income

$14,800

Karen believes the problem lies in the relatively low gross profit rate of 20%. Reece believes the problem is that operating expenses are too high. Karen thinks the gross profit rate can be improved by making two changes. (1) Increase average selling prices by 15%; this increase is expected to lower sales volume so that total sales dollars will increase only 4%. (2) Buy merchandise in larger quantities and take all purchase discounts. These changes to purchasing practices are expected to increase the gross profit rate from its current rate of 20% to a new rate of 25%. Karen does not anticipate that these changes will have any effect on operating expenses.

Reece thinks expenses can be cut by making these two changes. (1) Cut 2018 sales salaries of $44,400 in half and give sales personnel a commission of 2% of net sales. (2) Reduce store deliveries to one day per week rather than twice a week; this change will reduce 2018 delivery expenses of $29,600 by 40%. Reece feels that these changes will not have any effect on net sales.

Karen and Reece come to you for help in deciding the best way to improve net income.

Answer the following.

Cost Flow Relationships

The following information is available for the first year of operations of Creston Inc., a manufacturer of fabricating equipment:

Using the above information, determine the following amounts:

1) What is a quantity standard? What is a price standard?

2) Why are separate price and quantity variances computed?

3) Who is generally responsible for the materials price variance? The materials quantity variance? The labor efficiency?

5) If the materials price variance is favorable but the materials quantity variance is unfavorable, what might this indicate?

7) "Our workers are all under labor contracts; therefore, our labor rate variance is bound to be zero." Discuss.

8) What effect, if any, would you expect poor-quality materials to have on direct labor variances?