Questions
Financial Statements and Closing Entries The Gorman Group is a financial planning services firm owned and...

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:

The Gorman Group
End-of-Period Spreadsheet
For the Year Ended October 31, 2018
Adjusted Trial Balance
Account Title Dr. Cr.
Cash $11,200
Accounts Receivable 24,380
Supplies 3,810
Prepaid Insurance 8,230
Land 87,000
Buildings 312,000
Accumulated Depreciation-Buildings 101,500
Equipment 225,000
Accumulated Depreciation-Equipment 132,200
Accounts Payable 28,840
Salaries Payable 2,860
Unearned Rent 1,300
Common Stock 130,000
Retained Earnings 240,660
Dividends 21,600
Service Fees 411,290
Rent Revenue 4,340
Salaries Expense 294,860
Depreciation Expense-Equipment 16,000
Rent Expense 13,400
Supplies Expense 9,490
Utilities Expense 8,570
Depreciation Expense-Buildings 5,720
Repairs Expense 4,720
Insurance Expense 2,590
Miscellaneous Expense 4,420
1,052,990 1,052,990

Required:

1. Prepare an income statement.

The Gorman Group
Income Statement
For the Year Ended October 31, 2018
Revenues:
Total Revenues
Expenses:
Total Expenses
Net income

Prepare a Retained Earnings Statement.

The Gorman Group
Retained Earnings Statement
For the Year Ended October 31, 2018

Prepare a balance sheet.

The Gorman Group
Balance Sheet
October 31, 2018
Assets Liabilities
Current assets: Current liabilities:
Total liabilities
Total current assets
Property, plant, and equipment: Stockholders' Equity
Total property, plant, and equipment Total stockholders' equity
Total assets Total liabilities and stockholders' equity

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.

Date Account Debit Credit
2018
Oct. 31 Close revenues
Oct. 31 Close expenses
Oct. 31 Close income/loss
Oct. 31 Close dividends

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.
$  

In: Accounting

Honey Ltd, a New Zealand company, has sold US$150,000 of products to the US, to receive...

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:

spot rate Option value
At the date of sale 0.55 $3,000
One month late (i.e., at settlement) 0.62

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.

In: Accounting

Dividends Per Share Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 15,000...

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) $ $ $ $

In: Accounting

Suppose that the 2017 actual and 2018 projected financial statements for Cramner Corp. are initially as...

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?

Income Statement
2017
Actual
2018 Forecast
Sales $ 3,000,000 $ 4,050,000
Costs except depreciation 1,000,000 1,350,000
Depreciation 1,500,000 2,025,000
EBIT $ 500,000 $ 675,000
Less Interest 80,000 126,772
EBT $ 420,000 $ 548,228
Taxes (40%) 168,000 219,291
Net income $ 252,000 $ 328,937
Common Dividends $ 180,000 $ 180,000
Addition to Retained Earnings $ 72,000 $ 148,937

  

Balance Sheet
2017
Actual
2018
Forecast
Assets
Cash $ 100,000 $ 135,000
Accounts Receivable 200,000 270,000
Inventories 300,000 405,000
Total Current Assets $ 600,000 $ 810,000
Net Plant and Equipment 4,000,000 5,400,000
Total Assets $ 4,600,000 $ 6,210,000
Liabilities and Equity
Accounts Payable $ 100,000 $ 135,000
Notes Payable 500,000 675,000
Accruals 100,000 135,000
Total Current Liabilities $ 700,000 $ 945,000
Long-term bonds 500,000 675,000
Total Debt $ 1,200,000 $ 1,620,000
Common Stock $ 3,000,000 $ 4,050,000
Retained Earnings 400,000 540,000
Total Common Equity $ 3,400,000 $ 4,590,000
Total Liabilities and Equity $ 4,600,000 $ 6,210,000

In: Accounting

On December 31, 2019, the Income Statement section of the worksheet is shown below. The balance...

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.

INCOME STATEMENT COLUMNS
ACCOUNT NAME DEBIT CREDIT
Income Summary $ 63,000 $ 69,000
Sales 250,000
Sales Returns and Allowances 6,100
Interest Income 760
Purchases 87,000
Freight In 3,900
Purchases Returns and Allowances 2,900
Purchases Discounts 3,500
Sales Salaries Expense 53,000
Office Salaries Expense 20,100
Office Supplies Expense 860
Utilities Expense 5,100
Payroll Taxes Expense 2,700
Uncollectible Accounts Expense 2,800
Depr. Expense - Office Equipment 900
Totals 245,460 326,160
Net Income 80,700
$ 326,160 $ 326,160


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          

In: Accounting

A Vehicle Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art robotic machine....

  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?

In: Accounting

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

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

Units Dollars
April (actual) 4,000 $ 640,000
May (actual) 2,000 320,000
June (budgeted) 4,500 720,000
July (budgeted) 3,500 719,000
August (budgeted) 4,100 656,000


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.

In: Accounting

A financial manager is evaluating a merger target and wishes to estimate cost and revenue synergies...

  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.

In: Accounting

Three years ago, Karen Suez and her brother-in-law Reece Jones opened Gigasales Department Store. For the...

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.

In: Accounting

Cost Flow Relationships The following information is available for the first year of operations of Creston...

Cost Flow Relationships

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

Sales $909,300
Gross profit 245,500
Indirect labor 81,800
Indirect materials 33,600
Other factory overhead 15,500
Materials purchased 463,700
Total manufacturing costs for the period 1,003,900
Materials inventory, end of period 33,600

Using the above information, determine the following amounts:

c. Direct labor cost $

In: Accounting

Explain the compliance aspects of consolidated returns.

Explain the compliance aspects of consolidated returns.

In: Accounting

1) What is a quantity standard? What is a price standard? 2) Why are separate price...

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?

In: Accounting

Tamarisk Inc., a manufacturer of steel school lockers, plans to purchase a new punch press for...

Tamarisk Inc., a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate vendors, the purchasing department received differing terms and options from each vendor. The Engineering Department has determined that each vendor’s punch press is substantially identical and each has a useful life of 20 years. In addition, Engineering has estimated that required year-end maintenance costs will be $1,100 per year for the first 5 years, $2,100 per year for the next 10 years, and $3,100 per year for the last 5 years. Following is each vendor’s sales package. Vendor A: $60,060 cash at time of delivery and 10 year-end payments of $18,850 each. Vendor A offers all its customers the right to purchase at the time of sale a separate 20-year maintenance service contract, under which Vendor A will perform all year-end maintenance at a one-time initial cost of $9,500. Vendor B: Forty semiannual payments of $10,280 each, with the first installment due upon delivery. Vendor B will perform all year-end maintenance for the next 20 years at no extra charge. Vendor C: Full cash price of $159,600 will be due upon delivery. Assuming that both Vendors A and B will be able to perform the required year-end maintenance, that Tamarisk’s cost of funds is 10%, and the machine will be purchased on January 1, compute the following:

In: Accounting

Vertical Analysis of Income Statement Revenue and expense data for Innovation Quarter Inc. for two recent...

Vertical Analysis of Income Statement

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

       Current Year        Previous Year
Sales $500,000 $440,000
Cost of goods sold 340,000 277,200
Selling expenses 65,000 66,000
Administrative expenses 70,000 57,200
Income tax expense 10,000 17,600

a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.

Innovation Quarter Inc.
Comparative Income Statement
For the Years Ended December 31
Current year Amount Current year Percent Previous year Amount Previous year Percent
Sales $500,000 % $440,000 %
Cost of goods sold 340,000 % 277,200 %
$ % $ %
Selling expenses 65,000 % 66,000 %
Administrative expenses 70,000 % 57,200 %
$ % $ %
% %
Income tax expense 10,000 % 17,600 %
$ % $ %

b. The vertical analysis indicates that the cost of goods sold as a percent of sales   by 5 percentage points, while selling expenses   by 2 percentage points, and administrative expenses   by 1 percentage points. Thus, net income as a percent of sales   by 2 percentage points.

In: Accounting

Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business...

Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.

Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:

The couple’s marginal tax rate is 24 percent.

Regardless of whether they buy or rent, the couple will itemize their deductions.

If they buy, the Jacobys would purchase and move into the home on January 1, 2018.

If they buy the home, the property taxes for the year are $3,800.

Disregard loan-related fees not mentioned above.

If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.

Assume that all unstated costs are equal between the buy and rent option.

Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)

a If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)

Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.

Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:

The couple’s marginal tax rate is 24 percent.

Regardless of whether they buy or rent, the couple will itemize their deductions.

If they buy, the Jacobys would purchase and move into the home on January 1, 2018.

If they buy the home, the property taxes for the year are $3,800.

Disregard loan-related fees not mentioned above.

If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.

Assume that all unstated costs are equal between the buy and rent option.

Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)

rev: 12_18_2018_QC_CS-151658

a. If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)


Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.

Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:

The couple’s marginal tax rate is 24 percent.

Regardless of whether they buy or rent, the couple will itemize their deductions.

If they buy, the Jacobys would purchase and move into the home on January 1, 2018.

If they buy the home, the property taxes for the year are $3,800.

Disregard loan-related fees not mentioned above.

If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.

Assume that all unstated costs are equal between the buy and rent option.

Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)

rev: 12_18_2018_QC_CS-151658

a. If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)


          

Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.

Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:

The couple’s marginal tax rate is 24 percent.

Regardless of whether they buy or rent, the couple will itemize their deductions.

If they buy, the Jacobys would purchase and move into the home on January 1, 2018.

If they buy the home, the property taxes for the year are $3,800.

Disregard loan-related fees not mentioned above.

If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.

Assume that all unstated costs are equal between the buy and rent option.

Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)

a. If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)


b. What is the approximate break-even point in years for paying the points to receive a reduced interest rate? (To simplify this computation, assume the Jacobys will make interest-only payments, and ignore the time value of money.) (Do not round intermediate calculations. Round your final answer to 1 decimal place.)

c. What is the after-tax cost (in interest and property taxes) of living in the home for 2018? Assume that the Jacobys' interest rate is 5.70 percent, they do not pay discount points, they make interest-only payments for the first year, and the value of the home does not change during the year. (Round your intermediate calculations to the nearest whole dollar amount.)

          

d. Assume that on March 1, 2018, the Jacobys sold their home for $159,000, so that Derek and Meagan could accept job opportunities in a different state. The Jacobys used the sale proceeds to (1) pay off the $100,000 principal of the mortgage, (2) pay a $10,000 commission to their real estate broker, and (3) make a down payment on a new home in the different state. However, the new home cost only $75,000. Assume they make interest-only payments on the loan.

  Required:

d1. What gain or loss do the Jacobys realize and recognize on the sale of their home?

d2. What amount of taxes must they pay on the gain, if any?

e. Assume the same facts as in part (d), except that the Jacobys sell their home for $124,500 and they pay a $7,500 commission. What effect does the sale have on their 2018 income tax liability? Recall that the Jacobys are subject to an ordinary marginal tax rate of 24 percent and assume that they do not have any other transactions involving capital assets in 2018.

In: Accounting