Rey Company’s single product sells at a price of $234 per unit. Data for its single product for its first year of operations follow.

1. Prepare an income statement for the year using absorption costing
2. Prepare an income statement for the year using variable costing.

• Required 1
• Required 2

Prepare an income statement for the year using absorption costing.

• Required 1
• Required 2

Prepare an income statement for the year using variable costing.

MSI is considering eliminating a product from its ToddleTown Tours collection. This collection is aimed at children one to three years of age and includes “tours” of a hypothetical town. Two products, The Pet Store Parade and The Grocery Getaway, have impressive sales. However, sales for the third CD in the collection, The Post Office Polka, have lagged the others. Several other CDs are planned for this collection, but none is ready for production.

MSI’s information related to the ToddleTown Tours collection follows:

      
*Allocated based on total sales dollars.

MSI has determined that elimination of the Post Office Polka (POP) program would not impact sales of the other two items. The remaining fixed overhead currently allocated to the POP product would be redistributed to the remaining two products.

Required:
1. Calculate the incremental effect on profit if the POP product is eliminated.



2. Should MSI drop the POP product?

3-a. Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $4,000 of the common fixed costs could be avoided if the POP product line were eliminated.



3-b. Should MSI drop the POP product?

The following data are available pertaining to Household Appliance Company's retiree health care plan for 2021:

Required:
1. What is the accumulated postretirement benefit obligation at the beginning of 2021?
2. What is interest cost to be included in 2021 postretirement benefit expense?
3. What is service cost to be included in 2021 postretirement benefit expense?
4. Prepare the journal entry to record the postretirement benefit expense for 2021.

The general ledger of Jackrabbit Rentals at January 1, 2018, includes the following account balances:    

Accounts           Debits    Credits

Cash    $             45,500                                              

Accounts Receivable     29,700                                              

Land                  114,800                                                          

Accounts Payable                                                       $             15,700  

Notes Payable                                                                           34,000

Common Stock                                                                          104,000              

Retained Earnings                                                                     36,300  

    Totals               $             190,000                             $             190,000              

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

January 12 Provide services to customers on account, $66,400.

February 25 Provide services to customers for cash, $77,300.

March 19 Collect on accounts receivable, $46,100.

April 30 Issue shares of common stock in exchange for $34,000 cash.

June 16 Purchase supplies on account, $12,900.

July 7 Pay on accounts payable, $11,700.

September 30 Pay salaries for employee work in the current year, $68,200.

November 22 Pay advertising for the current year, $22,900.

December 30 Pay $3,300 cash dividends to stockholders.

Accrued interest on the notes payable at year-end amounted to $2,900. Accrued salaries at year-end amounted to $1,900. Supplies remaining on hand at the end of the year equal $2,700.

1. Enter the unadjusted balances from the trial balance and post the adjusting entries to the T-accounts, and post the closing entries to the T-accounts????
2.   Record adjusting entries???
3. Record closing entries???

Below are three independent situations.

1. ABC Ltd is a manufacturer of boats and gives warranties at the time of sale to purchasers of its boats. Pursuant to the warranty terms, ABC Ltd undertakes to make good, by repair or replacement, manufacturing defects that become apparent within three years from the date of sale.
2. ABC Ltd has a number of non-current assets, some of which require, in addition to normal ongoing maintenance, substantial expenditure on major refits/refurbishment at certain intervals or on major components that require replacement at regular intervals.
3. XYZ Ltd is a listed company that provides food to functional centres that host events such as wedding and engagement parties. After an engagement party held by one of XYZ Ltd’s customers in May 2020, 50 people became ill, possibly as a results of food poisoning from products sold by XYZ Ltd. Legal proceedings were commenced seeking damages from XYZ Ltd. XYZ Ltd disputed liability by claiming that the functional centre was at fault for handling the food incorrectly. Up to the date of 30 June 2020 (financial year-end), XYZ Ltd’s lawyers advise that it was probable that XYZ Ltd would not be found liable

   REQUIRED:

   Should a liability in the form of a provision be recorded? Briefly justify your decisions.

Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information relative to the two divisions:

*Before any purchase discount.

Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated.

Required:

1. Refer to case 1 shown above. Alpha Division can avoid $3 per unit in commissions on any sales to Beta Division.

a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?

b. What is the highest acceptable transfer price from the perspective of the Beta Division?

c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?

2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division.

a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?

b. What is the highest acceptable transfer price from the perspective of the Beta Division?

c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be?

d. Assume Alpha Division offers to sell 68,000 units to Beta Division for $37 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole?

3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 6% price discount from the outside supplier.

a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?

b. What is the highest acceptable transfer price from the perspective of the Beta Division?

c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?

d. Assume Beta Division offers to purchase 20,000 units from Alpha Division at $57.04 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged?

4. Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 56,000 units of a different product from the one Alpha Division is producing now. The new product would require $29 per unit in variable costs and would require that Alpha Division cut back production of its present product by 28,000 units annually. What is the lowest acceptable transfer price from Alpha Division’s perspective?

Each of the three independent situations below describes a finance lease in which annual lease payments are payable at the end of each year. The lessee is aware of the lessor’s implicit rate of return. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the amount the lessee would record as a right-of-use asset and a lease liability, for above situations. (Round your answers to nearest whole dollar.)

On January 1, 20X8, Liv Ltd. (LL), a Canadian company, acquired 90% of Marcus Co. (MC), a foreign company for FC 623,200. At the acquisition date, the carrying value of MC’s net assets equaled their fair value except for the equipment, which had a carrying value of FC 800,000 and a fair value of FC 880,000. At the acquisition date, MC’s equipment had a remaining useful life of 10 years. There was an FC 4,000 impairment of the goodwill which occurred evenly throughout 20X8.

Selected financial statements for LL and MC are presented below.

Liv Ltd.

Statement of Financial Position
As of December 31, 20X8

(in $ CDN)

Assets:
Noncurrent assets:
Plant and equipment, net 2,752,000
Investment in Marcus Co. 1,371,040
4,123,040

Current assets:

Inventory   1,376,000
Accounts receivable 700,000
Cash and cash equivalents 562,080

2,638,080
Total assets 6,761,120

Shareholders’ Equity:

Share capital 1,376,000
Retained earnings 2,601,520
3,977,520
Liabilities:
Noncurrent liabilities:

Notes payable 1,860,000

Current liabilities:

Accounts payable and accrued liabilities    923,600
Total liabilities 2,783,600
Total shareholders’ equity and liabilities 6,761,120

Liv Ltd.

Statement of Income

For the year ended December 31, 20X8

(in $ CDN)

Sales 16,472,000

Dividend income   180,080

= 16,652,080

Cost of sales 8,256,000
Other expenses* 7,124,000 (15,380,000)

Net income 1,272,080

*includes depreciation

LL declared and paid dividends of $928,000 CDN on December 31, 20X8.

Marcus Co.

Statement of Financial Position

(in FC)

Dec. 31, Jan. 1
20X8 20X8

Assets:

Noncurrent assets:

Equipment, net 720,000 800,000

Current assets:

Inventory    484,000 364,000

Accounts receivable 408,000 280,000

Cash 360,000 164,000

1,252,000 808,000   

Total assets 1,972,000 1,608,000

Shareholders’ equity:

Share capital 400,000. 400,000
Retained earnings 390,000 146,000

= 790,000 = 546,000

Liabilities:

Noncurrent liabilities:

Notes payable 640,000 640,000

Current liabilities:

Accounts payable 542,000 422,000

Total liabilities 1,182,000. 1,062,000

Total shareholders’ equity and liabilities 1,972,000 1,608,000

Marcus Co.

Statement of Income

For the year ended December 31, 20X8

(in FC)

Sales 8,400,000
Cost of sales 5,304,000
Other expenses* 2,688,000 (7,992,000)

408,000

*includes depreciation

Marcus Co.

Statement of Changes in Equity – Retained Earnings Section

For the year ended December 31, 20X8

(in FC)

Retained earnings, January 1, 20X8 146,000
Net income 408,000

Dividends declared (164,000)

Retained earnings, December 31, 20X8 = 390,000

MC declared and paid FC164,000 in dividends on December 31, 20X8.

Selected Exchange Rates

January 1, 20X8 FC1 = $2.20 CDN
December 31, 20X8 FC1 = $2.44 CDN

Date when ending inventory was purchased FC1 = $2.38 CDN

Average rate for 20X8 FC1 = $2.32 CDN

Required:

1. Prepare consolidated financial statements at December 31, 20X8 under each of the following assumptions:
   
   i) the functional currency is $CAD

Vaughn Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $108,000.

Discuss some tax planning strategies that can maximize the benefit of itemized deductions. You should list at least one strategy for each of the following categories:

Medical Expenses

Charitable Contributions

Interest on Mortgage Indebtedness

Mathews Company manufactures only one product. For the year ended December 31, the contribution margin increased by $41,616 from the planned level of $764,784. The president of Mathews Company has expressed some concern about this increase and has requested a follow-up report.

The following data have been gathered from the accounting records for the year ended December 31:

Required:

1. Prepare a contribution margin analysis report for the year ended December 31.

The Carlberg Company has two manufacturing departments, assembly and painting. The assembly department started 10,300 units during November. The following production activity unit and cost information refers to the assembly department’s November production activities. Assembly Department Units Percent of Direct Materials Added Percent of Conversion Beginning work in process 3,000 60 % 40 % Units transferred out 10,000 100 % 100 % Ending work in process 3,300 80 % 30 % Beginning work in process inventory—Assembly dept $ 2,696 (includes $896 for direct materials and $1,800 for conversion) Costs added during the month: Direct materials $ 13,008 Conversion $ 14,685 rev: 04_18_2018_QC_CS-124631 QS 16-10 Weighted average: Equivalent units of production LO C2 Required: Calculate the assembly department’s equivalent units of production for materials and for conversion for November. Use the weighted-average method.

1. During the first month of operations ended July 31, YoSan Inc. manufactured 8,800 flat panel televisions, of which 8,300 were sold. Operating data for the month are summarized as follows:

   Sales		$1,494,000
   Manufacturing costs:
   Direct materials	$748,000
   Direct labor	220,000
   Variable manufacturing cost	193,600
   Fixed manufacturing cost	96,800	1,258,400
   Selling and administrative expenses:
   Variable	$116,200
   Fixed	53,500	169,700

   Required:

   1. Prepare an income statement based on the absorption costing concept.

   YoSan Inc.
   Absorption Costing Income Statement
   For the Month Ended July 31
   		$
   Cost of goods sold:
   	$
   		$
   		$

   2. Prepare an income statement based on the variable costing concept.

   YoSan Inc.
   Variable Costing Income Statement
   For the Month Ended July 31
   		$
   Variable cost of goods sold:
   	$
   		$
   		$
   Fixed costs:
   	$
   		$

   3. Explain the reason for the difference in the amount of income from operations reported in (1) and (2).

   The income from operations reported under___ costing exceeds the income from operations reported under ____ costing by the difference between the two, due to____ manufacturing costs that are deferred to a future month under ____ costing.

Check My Work

The summarized statement of financial positions of A Ltd and B Ltd as at 31 December 2018 are as follows:

A Ltd purchased the entire share capital of B Ltd on 31 December 2018. The Non-Current Assets of B Ltd are considered to possess a fair value of sh.54,000 but there are no material differences between the book values and fair values of the remaining assets.

Required

1. Calculate the goodwill arising on consolidation
2. Prepare the consolidated statement of financial position of A Ltd and it subsidiary as at 31 December 2018

Note: Ignore depreciation