White Corporation’s budget calls for the following sales for next year: Quarter 1 95,000 units Quarter 3 67,000 units Quarter 2 81,000 units Quarter 4 98,000 units Each unit of the product requires 5 pounds of direct materials. The company’s policy is to begin each quarter with an inventory of product equal to 5% of that quarter’s estimated sales requirements and an inventory of direct materials equal to 20% of that quarter’s estimated direct materials requirements for production. Required: 1. Determine the production budget for the second quarter. 2. Determine the materials purchases budget for the second quarter.

Hopewell Electronics maintains its LED television inventory using the perpetual method. The inventory records for April follow: Beginning inventory 20 units @ $525 each April 12 purchase 30 units @ $550 each April 20 sale 40 units @ $830 each April 25 purchase 15 units @ $575 each Using the weighted-average cost method, how much is the April 30 ending inventory on the Hopewell Electronics' Balance Sheet? Select one: A. $21,600 B. $13,750 C. $14,025 D. $14,175

Depreciation by Three Methods; Partial Years

Perdue Company purchased equipment on April 1 for $75,870. The equipment was expected to have a useful life of three years, or 7,020 operating hours, and a residual value of $2,160. The equipment was used for 1,300 hours during Year 1, 2,500 hours in Year 2, 2,100 hours in Year 3, and 1,120 hours in Year 4.

Required:

Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) units-of-activity method, and (c) the double-declining-balance method.

Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.

a. Straight-line method

b. Units-of-activity method

c. Double-declining-balance method

In its Department R, Recyclers, Inc., processes donated scrap cloth into towels for sale in local thrift shops. It sells the products at cost. The direct materials costs are zero, but the operation requires the use of direct labor and overhead. The company uses a process costing system and tracks the processing volume and costs incurred in each period. At the start of the current period, 500 towels were in process and were 60 percent complete. The costs incurred were $176.

During the month, costs of $20,150 were incurred, 3,100 towels were started, and 250 towels were still in process at the end of the month. At the end of the month, the towels were 20 percent complete.

Required:

a. Prepare a production cost report: the company uses FIFO process costing. (Round "Cost per equivalent unit" to 2 decimal places.)

b. Show the flow of costs through T-accounts. Assume that current period conversion costs are credited to various payables.

Jane Thompson is managing a team of analysts assigned to the report on firms operating in the mining industry. The team is currently researching and analysing a firm that mines for lithium. The last 5 years the company has benefited from an increase in the price of lithium of about 10% each year, and has returned a large profit. The members of Jane’s team insist that this will continue, and that the forecast sales growth rate in their model should be 10% for each year. On the other hand, Jane is concerned that if this growth in the lithium price does not continue, the profits and value of this mining company will be negatively affected.

Discuss the problem that Jane faces with her team’s approach. Recommend a course of action that Jane can use to ensure the analysis conducted by her team is reasonable and accounts for different contingencies (possible outcomes). Explain how this should be presented to the potential investors.

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017.

(Hint: Interest must be accrued.)

Required:
1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale.
2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments.

Comparative financial statements for Weaver Company follow:

During this year, Weaver sold some equipment for $19 that had cost $31 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $13 that had cost $7 when purchased several years ago. Weaver paid a cash dividend this year and the company repurchased $39 of its own stock. This year Weaver did not retire any bonds.

2. Using the information from Part 1, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for this year. (List any deduction in cash and cash outflows as negative amounts.)

Comparative financial statements for Weaver Company follow:

During this year, Weaver sold some equipment for $19 that had cost $31 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $13 that had cost $7 when purchased several years ago. Weaver paid a cash dividend this year and the company repurchased $39 of its own stock. This year Weaver did not retire any bonds.

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2. Using the information from Part 1, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for this year. (List any deduction in cash and cash outflows as negative amounts.)

Magic Company adds materials at the beginning of the process in Department A. The following information on physical units for Department A for the month of August is available:

Required:

a. Compute the equivalent units for materials costs and for conversion costs using the weighted-average method.

b. Compute the equivalent units for materials costs and for conversion costs using the FIFO method.

Lansing, Inc. provides the following information for one of its department’s operations for June (no new material is added in Department T):

The ending inventory has 3,600 units, which are 50 percent complete with respect to Department T costs and 100 percent complete for prior department costs.

Required:

a. Complete the production cost report using the weighted-average method. (Round "Cost per equivalent unit" to 2 decimal places.)

Every time a company prepares financial statements, adjusting entries are required. Generally, financial statements are prepared at the end of each month, the end of each quarter and at the end of each year.

Each adjusting entry affects a balance sheet account and an income statement account. For example, Adjusting Entries for Prepaid Assets or Fixed Assets involve decreasing the asset account and increasing the expense account. Adjusting entries are made in order properly follow GAAP.

1. Based on your review of Section 1 of Chapter 5, describe an adjusting journal entry that is needed at the end of an accounting period.
2. Why are adjusting entries important and how do they contribute to accurate financial reporting?
3. Accrual accounting is required under U.S. GAAP. One of the main principles of accrual accounting is the Matching Principle, also known as the Revenue Recognition Principle and the Expense Recognition Principle. Consult are liable resource online and in your own words, explain the difference between accrual basis accounting and cash basis accounting. How does this relate to the Matching Principle?

Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, the company is thinking about dropping several flights that appear to be unprofitable.

A typical income statement for one round-trip of one such flight (flight 482) is as follows:

The following additional information is available about flight 482:

1. Members of the flight crew are paid fixed annual salaries, whereas the flight assistants are paid based on the number of round trips they complete.

2. One-third of the liability insurance is a special charge assessed against flight 482 because in the opinion of the insurance company, the destination of the flight is in a “high-risk” area. The remaining two-thirds would be unaffected by a decision to drop flight 482.

3. The baggage loading and flight preparation expense is an allocation of ground crews’ salaries and depreciation of ground equipment. Dropping flight 482 would have no effect on the company’s total baggage loading and flight preparation expenses.

4. If flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with another flight.

5. Aircraft depreciation is due entirely to obsolescence. Depreciation due to wear and tear is negligible.

6. Dropping flight 482 would not allow Pegasus Airlines to reduce the number of aircraft in its fleet or the number of flight crew on its payroll.

Required:

1. What is the financial advantage (disadvantage) of discontinuing flight 482?

Bonnie and Clyde are the only two shareholders in Getaway Corporation. Bonnie owns 55 shares with a basis of $4,400, and Clyde owns the remaining 45 shares with a basis of $16,500. At year-end, Getaway is considering different alternatives for redeeming some shares of stock. Evaluate whether each of the following stock redemption transactions will qualify for sale and exchange treatment. (Leave no answer blank. Enter zero if applicable.)

Required:

1. Getaway redeems 5 of Bonnie’s shares for $2,000. Getaway has $29,000 of E&P at year-end and Bonnie is unrelated to Clyde.
2. Getaway redeems 28 of Bonnie’s shares for $5,000. Getaway has $29,000 of E&P at year-end and Bonnie is unrelated to Clyde.
3. Getaway redeems 7 of Clyde’s shares for $2,500. Getaway has $29,000 of E&P at year-end and Clyde is unrelated to Bonnie.

Product Cost Report—Weighted Average Method

Reston Manufacturing Corporation produces a cosmetic product in three consecutive processes. The costs of Department 1 for May 2016 were as follows:

Department 1 handled the following units during May:

On average, the May 1 units were 30% complete. The May 31 units were 60% complete. Materials are added at the beginning of the process, and conversion costs occur evenly throughout the process in Department 1. Reston uses the weighted average method for process costing.

Required

Prepare the product cost report for Department 1 for May.

Round average cost per equivalent unit to four decimal places. Use rounded answers for subsequent calculations. Round other answers to the nearest whole number.

Pierce & Company provides the following information concerning the work in process at its plant:

• Beginning inventory was partially complete (materials are 100 percent complete; conversion costs are 61 percent complete).

• Started this month, 59,300 units.

• Transferred out, 50,200 units.

• Ending inventory, 18,700 units (materials are 100 percent complete; conversion costs are 15 percent complete).

Required:

a. Compute the equivalent units for materials using FIFO.

b. Compute the equivalent units for conversion costs using FIFO.