The general ledger of the Karlin Company, a consulting company, at January 1, 2021, contained the following account balances:

The following is a summary of the transactions for the year:

1. Service revenue, $134,000, of which $40,200 was on account and the balance was received in cash.
2. Collected on accounts receivable, $26,800.
3. Issued shares of common stock in exchange for $16,000 in cash.
4. Paid salaries, $49,000 (of which $10,000 was for salaries payable at the end of the prior year).
5. Paid miscellaneous expense for various items, $26,400.
6. Purchased equipment for $18,500 in cash.
7. Paid $3,250 in cash dividends to shareholders.

1. Accrued salaries at year-end amounted to $980.
2. Depreciation for the year on the equipment is $3,100.

Required:
a. Prepare an income statement for 2021.
b. Prepare a balance sheet as of December 31, 2021.

Departmental Income Statement
Elgin Flooring Company sells floor coverings through two departments, carpeting and hard covering (tile and linoleum). Operating information for 2016 appears below.

Common operating expenses of the firm were $120,000.

a. Prepare a departmental income statement showing departmental contribution to common expenses and net income of the firm. Assume an overall effective income tax rate of 35%. Elgin uses a periodic inventory system.

Do not use negative signs with any of your answers below.

b. Calculate the gross profit percentage for each department.

Round to the nearest whole percentage.

Carpeting department

Answer%

Hard Covering department

Answer%

c. If the common expenses were allocated 70% to the carpeting department and 30% to the hard covering department, what would the net income be for each department?

Do not use negative signs with any of your answers below.

Sanders acquired 100% of Clinton on January 1, 2017. The transaction was not a bargain purchase. On the date of the acquisition, Clinton's Building account had a net book value of 3,338,416 and a fair value of 3,981,039. As of 1/1/2017, Clinton's buildings have a remaining life of 10 years and are depreciated on a straight-line basis with no salvage value.

When preparing Sanders' consolidated financial statements for 2017, what AAP adjustment must be made for Depreciation expense?

A company purchases an asset that costs $46,000. This asset qualifies as three-year property under MACRS. The company uses an after-tax discount rate of 12% and faces a 31% income tax rate. (Use Table 1, Table 2 and Exhibit 12.4.)

1. Demonstrate that the PV of the depreciation deductions, when the income tax rate is 31%, is $11,472.
2. Given an after-tax discount rate of 12%, what tax rate would be needed in order for the PV of the depreciation deductions to equal $14,260? Use the Goal Seek function of Excel.

Selzik Company makes super-premium cake mixes that go through two processing departments—Blending and Packaging. The following activity was recorded in the Blending Department during July:

All materials are added at the beginning of work in the Blending Department. The company uses the FIFO method in its process costing system.

Required:

1. Calculate the Blending Department's equivalent units of production for materials and conversion for July.

2. Calculate the Blending Department's cost per equivalent unit for materials and conversion for July.

3. Calculate the Blending Department's cost of ending work in process inventory for materials, conversion, and in total for July.

4. Calculate the Blending Department's cost of units transferred out to the next department for materials, conversion, and in total for July.

5. Prepare a cost reconciliation report for the Blending Department for July.

On 1/1/2001, ABC Co. issued $1,000,000 5-year bonds with a market rate of 8%. Interests are paid annually on 12/31. The coupon rate is 6%. Answer the following questions assuming that the company uses the effective interest method of amortization. Show your calculations. 1. Determine the selling price of the bond on the issue date. Is it issued at a premium or discount? 2. Give the journal entry to record the bond issuance above. 3. How much is the interest expense for ABC Co. for the fiscal year that ended 12/31/2001? Give the journal entry to record the interest expense. 4 . On 1/1/2003, ABC Co. found itself with a lot of excess cash and it will be best for them to buy back their bonds from the open market and retire them so as to avoid future interest payments. The market interest rate on 1/1/2003 is 9%. Calculate: (i) the cash amount that ABC has to pay to retire the bond (ii) the book value (i.e., net borrowing) of the bonds on 1/1/2003 (iii) gain/loss from the retirement (iv) provide the journal entry for the early retirement of bonds.

MaxiCare Corporation, a not-for-profit organization, specializes in health care for senior citizens. Management is considering whether to expand operations by opening a new chain of care centers in the inner city of large metropolitan areas. For a new facility, initial cash outlays for lease, renovations, net working capital, training, and other costs are expected to be about $19 million. The corporation expects the cash inflows of each new facility in its first year of operation to equal the initial investment outlay for the facility. Net cash inflows are expected to increase to $3.0 million in each of years 2 and 3; $2.5 million in year 4; and $3.0 million in each of years 5 through 10. The lease agreement for the facility will expire at the end of year 10, and MaxiCare expects the cost to close a facility will pretty much exhaust all cash proceeds from the disposal. Cost of capital for MaxiCare is estimated as 12%. Assume that all cash flows occur at year end.

Required:

1. Compute (using the built-in NPV function in Excel) the net present value (NPV) the proposed investment. (Negative amount should be indicated by a minus sign. Enter your answer in whole dollars, not in millions, rounded to nearest whole dollar.)

2. Compute (using the built-in IRR function in Excel) the internal rate of return (IRR) for the proposed investment. (Round your final answer 2 decimal places. (i.e. .1234 = 12.34%))

3. What is the breakeven selling price for this investment, that is, the price that would yield an NPV of $0? (Use the Goal Seek function in Excel to determine the breakeven selling price. The following online tutorial may be helpful to you: Goal Seek Tutorial.) (Enter your answer in whole dollars, not in millions, rounded to nearest whole dollar.)

Return on Investment and Residual Income
Johnson Company has two sources of funds: long-term debt and equity capital. Johnson Company has profit centers in the following locations with the following net incomes and total assets:

a. Calculate ROI for each profit center and rank them from highest to lowest based on ROI.

Round ROI to the nearest whole percentage.

b. Calculate residual income for each profit center based on a desired ROI of 5% and rank them from highest to lowest based on residual income.

Single Plantwide Factory Overhead Rate

The total factory overhead for Bardot Marine Company is budgeted for the year at $1,710,000. Bardot Marine manufactures two types of boats: speedboats and bass boats. The speedboat and bass boat each require four direct labor hours for manufacture. Each product is budgeted for 9,000 units of production for the year.

When required, round all per unit answers to the nearest cent.

a. Determine the total number of budgeted direct labor hours for the year.
direct labor hours

b. Determine the single plantwide factory overhead rate.
$ per dlh

c. Determine the factory overhead allocated per unit for each product using the single plantwide factory overhead rate.

Prepare balance sheets for end of each semester.

Edwina Haskell was an accomplished high school student who looked forward to attending Southern New England University (SNEU). SNEU was unique in that it operated on a trimester basis, its policy was to actively foster independent development among the students. Edwina’s mother and father each own their own small businesses. Soon after freshman orientation at SNEU, Edwina recognized a need among the students that could be the basis for developing a small business. Freshman students could not bring their cars on the campus. In effect, they were confined to the dorm; if they wished to travel, they had to take school-provided buses that operated on a fixed schedule. Further, the university’s cafeteria closed at eight in the evening. Students who wanted to have some food or snacks after 8:00 p.m. had to call local restaurants that delivered. The few restaurants in the neighborhood around SNEU that had delivery services often were late in their deliveries, and hot food, such as pizza, was frequently delivered cold.

Edwina felt that there was a niche market on the campus. She believed that students would be interested in ordering sandwiches, snacks, and sodas from a fellow student provided that the food could be delivered in a timely fashion. After talking with several students in her dorm complex, she believed that offering a package of a sandwich, a soda, and a small snack, such as potato chips, for $5 and a guaranteed delivery of 15 minutes or less would be a winner. Because her dorm complex consisted of four large adjoining buildings that house nearly 1,600 students, she felt that there would be sufficient demand to make the concept profitable. She talked about this concept with her roommates and with her parents. Her roommates were willing to help prepare the sandwiches and deliver them. She planned on paying each of them $250 per trimester for taking orders, making sandwiches, and delivering them. All three roommates, whom she knew from high school, were willing to be paid at the end of the trimester.

Edwina recognized that for this business plan to work, she would have to have a sufficient inventory of cold cuts, lettuce, tomatoes, soda, chips, and condiments to be able to meet student demands. The small refrigerators in the dorm rooms would not be sufficient. After talking to her parents, they were willing to help her set up her business. They would lend her $1,000 to buy a larger refrigerator to place in her dorm room. She did not have to repay this loan until she graduated in four years, but her parents wanted her to appreciate the challenges of operating a small business. They set up several conditions. First, although she did not have to pay back the $1,000 for the refrigerator for four years, she had to pay interest on this “loan.” She had to repay 3 percent of this loan each trimester. Further, they reminded her that although she could pay her friends at the end of the semester, she would need funds to buy the cold cuts, bread, rolls, soda, snacks, condiments, and supplies such as foil to wrap the sandwiches, plus plates and paper bags. Although Edwina was putting $500 of her own money into her business, her parents felt that she might need an infusion of cash during the first year (i.e., the first three trimesters). They were willing to operate as her bank—lending her money, if needed, during the trimesters. However, she had to pay the loan(s) back by the end of the year. They also agreed that the loan(s) would be at a rate of 2 percent per trimester.

Within the first three weeks of her first trimester at SNEU, Edwina purchased the $1,000 refrigerator with the money provided by her parents and installed it in her dorm. She also went out and purchased $180 worth of supplies consisting of paper bags; paper plates; and plastic knives, spoons, and forks. She paid for these supplies out of her original $500 personal investment. She and her roommates would go out once or twice a week, using the SNEU bus system to buy what they thought would be the required amount of cold cuts, bread, rolls, and condiments. The first few weeks’ worth of supplies were purchased out of the remainder of the $500. Students paid in cash for the sandwiches. After the first two weeks, Edwina would pay for the food supplies out of the cash from sales.

In the first trimester, Edwina and her roommates sold 640 sandwich packages, generating revenue of $3,200. During this first trimester, she purchased $1,710 worth of food supplies. She used $1,660 to make the 640 sandwich packages. Fortunately, the $50 of supplies were condiments and therefore would last during the two-week break between the trimesters. Only $80 worth of the paper products were used for the 640 sandwich packages. Edwina spent $75 putting up posters and flyers around the campus promoting her new business. She anticipated that the tax rate would be approximately 35 percent of her earnings before taxes. She estimated this number at the end of the first trimester and put that money away so as to be able to pay her tax bill.

During the two weeks off between the first and second trimester, Edwina and her roommates talked about how they could improve business operations. Several students had asked about the possibility of having warm sandwiches. Edwina decided that she would purchase two Panini makers. So at the beginning of the second trimester, she tapped into her parents’ line of credit for two Panini grills, which in total cost $150. To make sure that the sandwiches would be delivered warm, she and her roommates spent $100 on insulated wrappings. The $100 came from cash. The second trimester proved to be even more successful. The business sold 808 sandwiches, generating revenue of $4,040. During this second trimester, the business purchased $2,100 worth of food supplies, using $2,020 of that to actually create the 808 sandwich packages. They estimated that during the second trimester, they used $101 worth of supplies in creating the sandwich packages.

There was only a one-week break between the second and third trimesters, and the young women were quite busy in developing ideas on how to further expand the business. One of the first decisions was to raise the semester salary of each roommate to $300 apiece. More and more students had been asking for a greater selection of warm sandwiches. Edwina and her roommates decided to do some cooking in the dorms so as to be able to provide meatball and sausage sandwiches. Edwina once again tapped into her parents’ line of credit to purchase $275 worth of cooking supplies. One of the problems they noticed was that sometimes students would place calls to order a sandwich package, but the phones were busy. Edwina hired a fellow student to develop a website where students could place an order and select the time that they would like a sandwich package to be delivered. The cost of creating and operating this website for this third trimester was $300.

This last semester of Edwina’s freshman year proved to be the most successful in terms of sales. They were able to fulfill orders for 1,105 sandwich packages, generating revenue of $5,525. Edwina determined that the direct cost of food for these sandwich packages came out to be $2,928.25. The direct cost of paper supplies was $165.75. At the end of her freshman year, Edwina repaid her parents the $425 that came from her credit line that was used to purchase the Panini makers and the cooking utensils.

The Davidson Company uses a weighted average process costing system. The following information was reported for the Assembly Process for January. Materials are added at the beginning of the process and are 100%.

What is the cost assigned to the units completed and transferred to finishing?

a.$976,000

b.$843,750

c.$708,750

d.$777,500

e.None of these choices are correct.

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Losh Company has the following unadjusted account balances on December 31, 2019. The pre-adjustment balance of Allowance for Doubtful Accounts is $3,200 debit. This company uses the following aging of accounts receivable to estimate its bad debts.

The Net Realizable Value of Accounts Receivable reported on the year-end Balance Sheet will be:

Select one:

A. $351,412

B. $348,212

C. $391,925

D. $354,612

In year 0, Javens Inc. sold machinery with a fair market value of $610,000 to Chris. The machinery’s original basis was $477,020 and Javens’s accumulated depreciation on the machinery was $71,000, so its adjusted basis to Javens was $406,020. Chris paid Javens $61,000 immediately (in year 0) and provided a note to Javens indicating that Chris would pay Javens $91,500 a year for six years beginning in year 1. What is the amount and character of the gain that Javens will recognize in year 0? What amount and character of the gain will Javens recognize in years 1 through 6?

Bubba’s Western Wear is a western hat retailer in Lubbock, Texas. Although Bubba’s carries numerous styles of western hats, each hat has approximately the same price and invoice (purchase) cost, as shown in the following table. Sales personnel receive a commission to encourage them to be more aggressive in their sales efforts. Currently, the Lubbock economy is really humming, and sales growth at Bubba’s has been great. The business is very competitive, however, and Bubba, the owner, has relied on his knowledgeable and courteous staff to attract and retain customers who otherwise might go to other western wear stores. Because of the rapid growth in sales, Bubba is also finding the management of certain aspects of the business more difficult, such as restocking inventory and hiring and training new salespeople.

Required:

1. Calculate the annual breakeven point, both in terms of units and in terms of sales dollars.

2. If Bubba’s sells 22,000 hats, what is its before-tax income or loss? Support your answer by preparing a contribution income statement.

3. If Bubba’s sells 32,000 hats, what is its margin of safety (MOS) and MOS ratio?

4. Bubba is considering the elimination of sales commissions completely and increasing salaries by $157,000 annually. What would be the new breakeven point in units? What would be the before-tax income or loss if 22,000 hats are sold with the new salary plan?

onnelly Inc., a manufacturer of quality electric ice cream makers, has experienced a steady growth in sales over the past few years. Because her business has grown, Jan DeJaney, the president, believes she needs an aggressive advertising campaign next year to maintain the company’s growth. To prepare for the growth, the accountant prepared the following data for the current year:

Required:

1. If the costs and sales price remain the same, what is the projected operating profit for the coming year?

2. What is the breakeven point in units for the coming year?

3. Jan has set the sales target for 61,800 ice cream makers, which she thinks she can achieve by an additional fixed selling expense of $259,900 for advertising. All other costs remain as per the data in the above table. What will be the operating profit if the additional $259,900 is spent on advertising and sales rise to 61,800 units?

4-a. What will be the new breakeven point if the additional $259,900 is spent on advertising?

4-b. Prepare a contribution income statement at the new breakeven point.

4-c. What is the percentage change in both fixed costs and in the breakeven point?

5. If the additional $259,900 is spent for advertising in the next year, what is the sales level (in units) needed to equal the current year’s operating profit at 58,500 units?