3) What’s the difference between “financial statement materiality” and “performance materiality” and how are they used in an audit. Provide an example.

Port Ormond Carpet Company manufactures carpets. Fiber is placed in process in the Spinning Department, where it is spun into yarn. The output of the Spinning Department is transferred to the Tufting Department, where carpet backing is added at the beginning of the process and the process is completed. On January 1, Port Ormond Carpet Company had the following inventories:

Departmental accounts are maintained for factory overhead, and both have zero balances on January 1. Manufacturing operations for January are summarized as follows:

Journal

1. Journalize the entries to record the operations, using the dates provided with the summary of manufacturing operations. Refer to the Chart of Accounts for exact wording of account titles.

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ACCOUNTING EQUATION

Final Questions

2. Compute the January 31 balances of the inventory accounts.

3. Compute the January 31 balances of the factory overhead accounts. Enter all amounts as positive numbers.

Jarvene Corporation uses the FIFO method in its process costing system. The following data are for the most recent month of operations in one of the company’s processing departments:

The cost of beginning inventory according to the company’s costing system was $7,830 of which $4,824 was for materials and the remainder was for conversion cost. The costs added during the month amounted to $184,110. The costs per equivalent unit for the month were:

Required:

1. Compute the total cost per equivalent unit for the month.

2. Compute the equivalent units of material and conversion in the ending inventory.

3. Compute the equivalent units of material and conversion that were required to complete the beginning inventory.

4. Compute the number of units started and completed during the month.

5. Compute the cost of ending work in process inventory for materials, conversion, and in total for the month.

6. Compute the cost of the units transferred to the next department for materials, conversion, and in total for the month.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3
• Required 4
• Required 5
• Required 6

Compute the total cost per equivalent unit for the month. (Round your answer to 2 decimal places.)

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3
• Required 4
• Required 5
• Required 6

Compute the equivalent units of material and conversion in the ending inventory.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3
• Required 4
• Required 5
• Required 6

Compute the equivalent units of material and conversion that were required to complete the beginning inventory.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3
• Required 4
• Required 5
• Required 6

Compute the number of units started and completed during the month.

• Required 1
• Required 2
• Required 3
• Required 4
• Required 5
• Required 6

Compute the cost of ending work in process inventory for materials, conversion, and in total for the month. (Round your intermediate calculations to 2 decimal places.)

Compute the cost of the units transferred to the next department for materials, conversion, and in total for the month. (Round your intermediate calculations to 2 decimal places.)

(4) Performance-Based Share Option Compensation Plan

On January 1, 2016, Pierce Company establishes a performance-based share option plan for its 80 top executives. The terms of the plan are that each executive is granted a maximum of 200 options after completing a 3-year service period. The exact number of options granted, however, depends on the percentage increase in sales over the 3-year period. The terms are: (1) if sales increase between 0% and 3%, each executive is granted 90 options; (2) if sales increase between 4% and 6%, each executive is granted 140 options; and (3) if sales increase at least 7%, each executive is granted the maximum number of options. Each option entitles the executive to acquire one share of the company’s $10 par common stock at a price of $45. The options expire at the end of 4 years.

On the grant date, Pierce uses an option pricing model to estimate that the fair value of each share option is $15.50. Pierce’s employee turnover rate is expected to be 16% over the service period. At the end of 2017, because of lower turnover, Pierce revises its estimated turnover rate to 14% for the service period. At the end of 2018, options vest for 68 executives. On February 3, 2019, 50 executives exercise their options when the market price of the company’s common stock is $62 per share. During the remainder of the year, the market price declines so that at the end of 2019 the other 18 executives allow their options to expire.

Based on a projection of past trends, on the grant date Pierce estimates that its sales will increase about 5% by the end of 2018. This estimate appears accurate through 2017. However, in the last half of 2018, sales increase so much that at the end of 2018 Pierce determines that its total sales have increased by 7% over the 3-year service period. All inventory is shipped by Pierce to its customers under FOB destination terms.

Required:

Prepare Pierce’s memorandum entry and the journal entry on December 31, 2016 in regard to this plan. Additional Instructions

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Prepare Pierce’s memorandum entry and the journal entry on December 31, 2017 in regard to this plan. Additional Instructions

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Prepare Pierce’s memorandum entry and the journal entry on December 31, 2018 in regard to this plan. Additional Instructions

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Prepare Pierce’s memorandum entry and the journal entries on February 3, 2019 and December 31, 2019 in regard to this plan. Additional Instructions

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Show how the account(s) related to the plan is (are) reported in the shareholders’ equity section of Pierce’s December 31, 2017, balance sheet. Additional Instructions

Prepare a schedule of Pierce’s compensation computations for its compensatory share option plan for 2016 through 2018.Additional Instructions

Peter acquires 100% of Saul for 5,254,360 in a tax-free business combination. The applicable income tax rate is 30%. Goodwill is not deductible for tax purposes. Based on the following information about the assets and liabilities of Sunfish, what amount should Porpoise record as goodwill for this acquisition on the date of acquisition?

Brothers Mike and Tim Hargen began operations of their tool and die shop (H & H Tool, Inc.) on January 1, 2016. The annual reporting period ends December 31. The trial balance on January 1, 2017, follows:

Transactions during 2017 follow:

1. Borrowed $20,000 cash on a 5-year, 6 percent note payable, dated March 1, 2017.
2. Purchased land for a future building site on March 15, 2017; paid cash, $18,000.
3. Earned $301,000 in revenue. Transactions dated August 30, 2017 , including $64,000 on credit and the rest in cash.
4. Sold 4,000 additional shares of capital stock for cash at $1 market value per share on January 1, 2017.
5. Incurred $143,000 in remaining expenses for 2017, invoices dated October 15, 2017, including $35,000 on credit and the rest paid in cash.
6. Collected accounts receivables on November 10, 2017, $39,000.
7. Purchased other assets on November 15, 2017, $13,000 cash.
8. Purchased supplies on account for future use on December 1, 2017, $38,000.
9. Paid accounts payable on December 15, 2017, $36,000.
10. Signed a three-year $44,000 service contract on December 17, 2017 to start February 1, 2018.
11. Declared and paid cash dividends on December 20, 2017, $36,000.

Data for adjusting entries:

12. Supplies counted on December 31, 2017, $29,000.
13. Depreciation for the year on the equipment, $14,000.
14. Interest accrued on notes payable (to be computed).
15. Wages earned by employees since the December 24 payroll but not yet paid, $16,000.
16. Income tax expense, $13,000, payable in 2018

1. Prepare journal entries for transactions (a) through (k). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Prepare the adjusting entries for transactions (l) through (p). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3. Post the journal entries for transactions (a) through (k) and adjusting entries for transactions (l) through (p) to the respective T-Accounts

4. Prepare an income statement (including earnings per share), statement of stockholders’ equity, and balance sheet. (For the Statement of Stockholders' Equity and Balance Sheet only, items to be deducted must be indicated with a minus sign. Round "Earnings per share" to 2 decimal places.)

5. Identify the type of transaction for (a) through (k) for the statement of cash flows (O for operating, I for investing, F for financing), and the direction and amount of the effect. (List cash outflows as negative amounts. For transactions with no effect, choose "NE".)

6. Prepare the closing entry on December 31, 2017. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. After recording this closing entry, post the entry to the General Ledger in Part (3).)

7-a. Compute the current ratio for 2017. (Round your answer to 2 decimal places.)

7-b. Compute the total asset turnover ratio for 2017. (Round your answer to 2 decimal places.)

7-c. Compute the net profit margin ratio for 2017. (Enter your answer as a percentage rounded to 1 decimal place (i.e. 0.123 should be entered as 12.3).)

“This is really an odd situation,” said Jim Carter, general manager of Highland Publishing Company. “We get most of the jobs we bid on that require a lot of press time in the Printing Department, yet profits on those jobs are never as high as they ought to be. On the other hand, we lose most of the jobs we bid on that require a lot of time in the Binding Department. I would be inclined to think that the problem is with our overhead rates, but we’re already computing separate overhead rates for each department. So what else could be wrong?”

Highland Publishing Company is a large organization that offers a variety of printing and binding work. The Printing and Binding departments are supported by three service departments. The costs of these service departments are allocated to other departments in the order listed below. The Personnel cost is allocated based on number of employees. The Custodial Services cost is allocated based on square feet of space occupied and the Maintenance cost is allocated based on machine-hours.

Budgeted overhead costs in each department for the current year are shown below:

Because of its simplicity, the company has always used the direct method to allocate service department costs to the two operating departments.

Required:

1. Using the step-down method, allocate the service department costs to the consuming departments. Then compute predetermined overhead rates in the two operating departments. Use machine-hours as the allocation base in the Printing Department and direct labor-hours as the allocation base in the Binding Department.

2. Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in the Printing and Binding departments.

3. Assume that during the current year the company bids on a job that requires machine and labor time as follows:

a. Determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in (1) above. Then determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in (2) above.

Question 10

The comparative balance sheets for Rothlisberger Company as of December 31 are presented below.

Additional information:

***Prepare a statement of cash flows for the year ended December 31, 2020, using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Leslie Sporting Goods is a locally owned store that specializes in printing team jerseys. The majority of its business comes from orders for various local teams and organizations. While Leslie’s prints everything from bowling team jerseys to fraternity/sorority apparel to special event shirts, summer league baseball and softball team jerseys are the company’s biggest source of revenue.

A portion of Leslie’s operating information for the company’s last year follows:

Required:
3. Using the high-low method, calculate the store’s total fixed operating costs and variable operating cost per jersey. (Do not round your intermediate calculations. Round your "Variable Cost" answer to 2 decimal places and "Fixed Cost" answer to the nearest whole number.)

  
4. Using the high-low method results, calculate the store’s expected operating cost if it printed 440 jerseys. (Do not round your intermediate calculations. Round your answer to the nearest whole number.)

   

5. Perform a least-squares regression analysis on Leslie’s data. (Use Microsoft Excel or a statistical package to find the coefficients using least-squares regression. Round your answers to 2 decimal places.)


  
6. Using the regression output, create a linear equation (y = a + bx) for estimating Leslie’s operating costs. (Round your answers to 2 decimal places.)



7. Using the least-squares regression results, calculate the store’s expected operating cost if it prints 650 jerseys. (Round your intermediate calculations to 2 decimal places. Round your final answer to 2 decimal places.)

Twenty metrics of liquidity, Solvency, and Profitability

The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $64 on December 31, 20Y8.

Instructions:

Determine the following measures for 20Y8. Round ratio values to one decimal place and dollar amounts to the nearest cent. For number of days' sales in receivables and number of days' sales in inventory, round intermediate calculations to the nearest whole dollar and final amounts to one decimal place. Assume there are 365 days in the year.

Depreciation for Partial Periods

Bar Delivery Company purchased a new delivery truck for $36,000 on April 1, 2019. The truck is expected to have a service life of 10 years or 180,000 miles and a residual value of $3,000. The truck was driven 12,000 miles in 2019 and 16,000 miles in 2020. Bar computes depreciation expense to the nearest whole month.

Required:

1. Compute depreciation expense for 2019 and 2020 using the following methods: (Round your answers to the nearest dollar.)
   1. Straight-line method

      2019	$ fill in the blank 1
      2020	$ fill in the blank 2

   2. Sum-of-the-years'-digits method

      2019	$ fill in the blank 3
      2020	$ fill in the blank 4

   3. Double-declining-balance method

      2019	$ fill in the blank 5
      2020	$ fill in the blank 6

   4. Activity method

      2019	$ fill in the blank 7
      2020	$ fill in the blank 8

2. For each method, what is the book value of the machine at the end of 2019? At the end of 2020? (Round your answers to the nearest dollar.)
   1. Straight-line method

      2019	$ fill in the blank 9
      2020	$ fill in the blank 10

   2. Sum-of-the-years'-digits method

      2019	$ fill in the blank 11
      2020	$ fill in the blank 12

   3. Double-declining-balance method

      2019	$ fill in the blank 13
      2020	$ fill in the blank 14

   4. Activity method

      2019	$ fill in the blank 15
      2020	$ fill in the blank 16

On January 1, 2017, Abbey acquires 90 percent of Benjamin's outstanding shares. Financial information for these two companies for the years of 2017 and 2018 follows:

Abbey Company:

   2017 2018

Benjamin Company:

Assume that a tax rate of 40 percent is applicable to both companies :

1. On consolidated financial statements for 2018, what are the income tax expense and the income tax currently payable if Abbey and Benjamin file a consolidated tax return as an affiliated group?
2. On consolidated financial statements for 2018, what are the income tax expense and income tax currently payable if they choose to file separate returns?

a. Income tax expense

   Income tax payable

b. Income tax expense

   Income tax payable

(6) Treasury Stock Analysis

Ray Holt Corporation has retained you as a consultant on accounting policies and procedures. During 2016, the company engaged in a number of treasury stock transactions, having foreseen an opportunity to report its treasury stock as an asset and to recognize a profit in trading its own stock. The transactions were as follows:

Required:

Prepare an analysis of treasury stock accounting for Mr. Robert Richter, the controller. This analysis should contain proper journal entries for each of the treasury stock transactions occurring during 2016, prepared using the cost method discussed in the chapter. Additional Instructions

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Which of the following is correct regarding treasury stock?

(A) A corporation may not recognize a gain or loss from trading in its own securities.

(B) All of the choices are correct regarding treasury stock.

(C) Reacquisition and reissuance are treated as a contraction and expansion of shareholders' equity.

(D) Treasury Stock is not asset, a corporation cannot own itself.

How are "gains" on treasury stock reported?

(A) As a gain.

(B) As an increase in additional paid-in capital.

(C) As a loss.

(D) As a decrease in additional paid-in capital.

Data for Barry Computer Co. and its industry averages follow. The firm's debt is priced at par, so the market value of its debt equals its book value. Since dollars are in thousands, number of shares are shown in thousands too.

1. Calculate the indicated ratios for Barry. Round your answers to two decimal places.

   Ratio	Barry	Industry Average
   Current	x	1.62x
   Quick	x	0.84x
   Days sales outstandinga	days	32.59 days
   Inventory turnover	x	4.58x
   Total assets turnover	x	1.47x
   Profit margin	%	1.62%
   ROA	%	2.39%
   ROE	%	6.71%
   ROIC	%	7.80%
   TIE	x	2.41x
   Debt/Total capital	%	47.23%
   M/B	%	5.30%
   P/E	%	23.35%
   EV/EBITDA	%	7.63%

   
   ^aCalculation is based on a 365-day year.
   
2. Construct the DuPont equation for both Barry and the industry. Round your answers to two decimal places.

   	FIRM	INDUSTRY
   Profit margin	%	1.62%
   Total assets turnover	x	1.47x
   Equity multiplier	x	x

3. Select the correct option based on Barry's strengths and weaknesses as revealed by your analysis.
   -Select-IIIIIIIVVItem 19
   1. The firm's days sales outstanding ratio is more than the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well above the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in an above average liquidity position and financial leverage is similar to others in the industry.
   2. The firm's days sales outstanding ratio is comparable to the industry average, indicating that the firm should neither tighten credit nor enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in a below average liquidity position and financial leverage is similar to others in the industry.
   3. The firm's days sales outstanding ratio is more than twice as long as the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. Finally, it's market value ratios are also below industry averages. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.
   4. The firm's days sales outstanding ratio is more than twice as long as the industry average, indicating that the firm should loosen credit or apply a less stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.
   5. The firm's days sales outstanding ratio is less than the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both. While the company's profit margin is lower than the industry average, its other profitability ratios are high compared to the industry - net income should be higher given the amount of equity, assets, and invested capital. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.
4. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2018. How would that information affect the validity of your ratio analysis? (Hint: Think about averages and the effects of rapid growth on ratios if averages are not used. No calculations are needed.)
   -Select-IIIIIIIVVItem 20
   1. If 2018 represents a period of supernormal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning. Potential investors who look only at 2018 ratios will be misled, and a return to normal conditions in 2019 could hurt the firm's stock price.
   2. If 2018 represents a period of supernormal growth for the firm, ratios based on this year will be accurate and a comparison between them and industry averages will have substantial meaning. Potential investors need only look at 2018 ratios to be well informed, and a return to normal conditions in 2019 could help the firm's stock price.
   3. If 2018 represents a period of normal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning. Potential investors who look only at 2018 ratios will be misled, and a continuation of normal conditions in 2019 could hurt the firm's stock price.
   4. If 2018 represents a period of normal growth for the firm, ratios based on this year will be accurate and a comparison between them and industry averages will have substantial meaning. Potential investors who look only at 2018 ratios will be misled, and a return to supernormal conditions in 2019 could hurt the firm's stock price.
   5. If 2018 represents a period of supernormal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have substantial meaning. Potential investors who look only at 2018 ratios will be well informed, and a return to normal conditions in 2019 could hurt the firm's stock price.

Reciprocal Method of Support Department Cost Allocation Valron Company has two support departments, Human Resources and General Factory, and two producing departments, Fabricating and Assembly. Support Departments Producing Departments Human Resources General Factory Fabricating Assembly Direct costs $160,000 $330,000 $114,800 $94,000 Normal activity: Number of employees — 60 80 170 Square footage 1,000 — 5,700 13,300 The costs of the Human Resources Department are allocated on the basis of number of employees, and the costs of General Factory are allocated on the basis of square footage. Now assume that Valron Company uses the reciprocal method to allocate support department costs. Required: 1. Calculate the allocation ratios (rounded to four significant digits) for the four departments using the reciprocal method. If an amount is zero, enter "0". Use the rounded values for subsequent calculations. Proportion of Driver Used by Human Resources General Factory Fabricating Assembly Human Resources General Factory 2. Develop a simultaneous equations system of total costs for the support departments. If required, round your answers to four decimal places. Use these numbers for subsequent calculations. If required, round all other intermediate calculations to six decimal places, except the answers computed in requirement 1. Human Resources (HR) = $ + (GF) General Factory (GF) = $ + (HR) Solve for the total reciprocated costs of each support department. (Round reciprocated total costs to the nearest dollar.) Human Resources (HR) $ General Factory (GF) $ 3. Using the reciprocal method, allocate the costs of the Human Resources and General Factory departments to the Fabricating and Assembly departments. Round all allocated costs to the nearest dollar. If an amount is zero, enter "0". Note: There may be a "$1" difference due to intermediate rounding. Support Departments Producing Departments Human Resources General Factory Fabricating Assembly Direct costs $ $ $ $ Allocate: Human Resources General Factory Total after allocation $ $ $ $