Advanced Pharmaceuticals, Inc., is a wholesale distributor of prescription drugs to independent retail and hospital-based pharmacies. Management believes that top-notch customer representatives are the key factor in determining whether the company will be successful in the future. Customer representatives serve as the company’s liaison with customers—helping pharmacies monitor their stocks, delivering drugs when customer stocks run low, and providing up-to-date information on drugs from many different companies. Customer representatives must be ultra-reliable and are highly trained. Good customer representatives are hard to come by and are not easily replaced. Customer representatives routinely record the amount of time they spend serving each pharmacy. This time includes travel time to and from the company’s central warehouse as well as time spent replenishing stocks, dealing with complaints, answering questions about drugs, informing pharmacists of the latest developments and newest products, reviewing bills, explaining procedures, and so on. Some pharmacies require more hand-holding and attention than others and consequently they consume more of the representatives’ time. Recently, customer representatives have made more frequent complaints that it is impossible to do their jobs without working well beyond normal working hours. This has led to an alarming increase in the number of customer representatives quitting for jobs in other organizations. As a consequence, management is considering dropping some customers to reduce the workload on customer representatives. Data concerning a representative sample of the company’s customers appears below: Leafcrest Pharmacy Providence Hospital Pharmacy Madison Clinic Pharmacy Jenkins Pharmacy Total revenues $328,860 $3,056,380 $1,487,010 $208,550 Cost of drugs sold $232,470 $2,248,480 $1,133,440 $129,920 Customer service costs $10,710 $76,500 $45,500 $7,980 Customer representative time 255 1,380 630 150 Customer service costs include all of the costs—other than the costs of the drugs themselves—that could be avoided by dropping the customer. These costs include the hourly wages of the customer representatives, their sales commissions, the mileage-related costs of the customer representatives’ company-provided vehicles, and so on. Required: 1. Rank the four customers in terms of their profitability. 2. Customer representatives are currently paid $40 per hour plus a commission of 1% of sales revenues. If these four pharmacies are indeed representative of the company’s customers, could the company afford to pay its customer representatives more in order to retain them? Yes No
In: Accounting
Boron Chemical Company produces a synthetic resin that is used in the automotive industry. The company uses a standard cost system. For each gallon of output, the following direct manufacturing costs are anticipated: |
Direct labor: 2.80 hours at $33.00 per hour | $92.40 |
Direct materials: 2.80 gallons at $18.00 per gallon | $50.40 |
During December of the current year, Boron produced a total of 2,580 gallons of output and incurred the following direct manufacturing costs: |
Direct labor: 7,100 hours worked @ an average wage rate of $20.30 per hour |
Direct materials: |
Purchased: 8,000 gallons @ $18.45 per gallon |
Used in production: 7,400 gallons |
Boron records price variances for materials at the time of purchase. |
Required: |
Prepare journal entries for the following events and transactions: |
1. | Purchase, on credit, of direct materials. |
2. | Direct materials issued to production. |
3. | Direct labor cost of units completed this period. |
4. |
Direct manufacturing cost (direct labor plus direct materials) of units completed and transferred to Finished Goods Inventory. |
5. | Sale, for $230 per gallon, of 2,400 gallons of output. (Hint: You will need two journal entries here.) |
(If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round final answers to the nearest whole dollar.) |
In: Accounting
What are some of the business benefits and management challenges of client/server networks?
In: Accounting
Below are transactions related to Wildhorse Company.
(a) | The City of Pebble Beach gives the company 5 acres of land as a plant site. The fair value of this land is determined to be $81,700. | |
(b) | 13,000 shares of common stock with a par value of $53 per share are issued in exchange for land and buildings. The property has been appraised at a fair value of $817,000, of which $187,260 has been allocated to land and $629,740 to buildings. The stock of Wildhorse Company is not listed on any exchange, but a block of 100 shares was sold by a stockholder 12 months ago at $68 per share, and a block of 200 shares was sold by another stockholder 18 months ago at $61 per share. | |
(c) | No entry has been made to remove from the accounts for Materials, Direct Labor, and Overhead the amounts properly chargeable to plant asset accounts for machinery constructed during the year. The following information is given relative to costs of the machinery constructed. |
Materials used | $11,820 | |
Factory supplies used | 827 | |
Direct labor incurred | 14,500 | |
Additional overhead (over regular) caused by construction
of machinery, excluding factory supplies used |
2,762 | |
Fixed overhead rate applied to regular manufacturing operations | 60% of direct labor cost | |
Cost of similar machinery if it had been purchased from outside suppliers |
44,870 |
Prepare journal entries on the books of Wildhorse Company to record
these transactions
In: Accounting
The company sells many styles of earrings, but all are sold for the same price—$16 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings): |
January (actual) | 21,200 | June (budget) | 51,200 |
February (actual) | 27,200 | July (budget) | 31,200 |
March (actual) | 41,200 | August (budget) | 29,200 |
April (budget) | 66,200 | September (budget) | 26,200 |
May (budget) | 101,200 | ||
The concentration of sales before and during May is due to Mother’s Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month. |
Suppliers are paid $4.6 for a pair of earrings. One-half of a month’s purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month’s sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible. |
Monthly operating expenses for the company are given below: |
Variable: | |||
Sales commissions | 4% | of sales | |
Fixed: | |||
Advertising | $ | 260,000 | |
Rent | $ | 24,000 | |
Salaries | $ | 118,000 | |
Utilities | $ | 10,000 | |
Insurance | $ | 3,600 | |
Depreciation | $ | 20,000 | |
Insurance is paid on an annual basis, in November of each year. |
The company plans to purchase $19,000 in new equipment during May and $46,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $19,500 each quarter, payable in the first month of the following quarter. |
A listing of the company’s ledger accounts as of March 31 is given below: |
Assets | ||
Cash | $ | 80,000 |
Accounts receivable ($43,520 February sales; $527,360 March sales) | 570,880 | |
Inventory | 121,808 | |
Prepaid insurance | 24,000 | |
Property and equipment (net) | 1,010,000 | |
Total assets | $ | 1,806,688 |
Liabilities and Stockholders’ Equity | ||
Accounts payable | $ | 106,000 |
Dividends payable | 19,500 | |
Common stock | 920,000 | |
Retained earnings | 761,188 | |
Total liabilities and stockholders’ equity | $ | 1,806,688 |
The company maintains a minimum cash balance of $56,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month. |
The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $56,000 in cash. |
Required: | |
1. | Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets: |
a. | A sales budget, by month and in total. |
b. | A schedule of expected cash collections from sales, by month and in total. |
c. |
A merchandise purchases budget in units and in dollars. Show the budget by month and in total. (Round "Unit cost" answers to 2 decimal places.) |
d. |
A schedule of expected cash disbursements for merchandise purchases, by month and in total. |
In: Accounting
In: Accounting
Wescott Company has three divisions: A, B, and C. The company
has a hurdle rate of 8 percent. Selected operating data for the
three divisions are as follows:
Division A | Division B | Division C | ||||
Sales revenue | $ | 1,210,000 | $ | 1,281,000 | $ | 1,316,000 |
Cost of goods sold | 748,000 | 941,000 | 956,000 | |||
Miscellaneous operating expenses | 83,000 | 71,000 | 72,000 | |||
Interest and taxes | 67,000 | 60,000 | 60,000 | |||
Average invested assets | 11,587,000 | 2,823,000 | 4,640,000 | |||
Wescott is considering an expansion project in the upcoming year
that will cost $7.2 million and return $653,000 per year. The
project would be implemented by only one of the three
divisions.
Required:
1. Compute the ROI for each division. (Do not
round your intermediate calculations. Round your percentage answer
to 2 decimal places, (i.e. 0.1234 should be entered as
12.34%.))
Division A ___??____%
Division B____???__%
Division C____???___%
2. Compute the residual income for each division.
(Loss amounts should be indicated by a minus
sign.)
Division A _____??
Division B ______???
Division C______???
3. Rank the divisions according to the ROI and
residual income of each.
Division A
Division B
Division C
4-a. Compute the return on investment on the
proposed expansion project. (Round your percentage answer
to 2 decimal places, (i.e. 0.1234 should be
entered as 12.34%.))
Return on investment of proposed expansion project ???%
4-b. Is this an acceptable project?
No | |
Yes |
5. Without any additional calculations, state
whether the proposed project would increase or decrease each
division’s ROI.
Division A: increase or decrease
Division B: increase or decrease
Divsion C: increase or decrease
6. Compute the new ROI and residual income for
each division if the project was implemented within that division.
(Loss amounts should be entered with a minus sign. Enter
your ROI percentage answers to 2 decimal places, (i.e., 0.1234
should be entered as 12.34%.))
Division A ??% Residual income? (Loss)
Division B ??% Residual income? (Loss)
Division C ??% Residual Income? (Loss)
In: Accounting
Post the journal entries to T accounts
Prepare a post-closing trial balance
Northeast Company
January 1, 2017,
Balance Sheet
Cash 20,000
Accounts receivable 110,000
Less: Allowance for doubtful accounts (2,000)
Inventory (500 units @ $20 each) 10,000
Equipment 9,000
Less: Accumulated depreciation (2,000) -----------------
Total assets 145,000
Accounts payable 20,000
Long-term notes payable (5% interest, due in 2019) 100,000
Capital stock 10,000
Retained earnings 15,000 -------------------
145,000
Transactions or events:
The company collected 98,000 of the accounts receivable in cash.
The company wrote off one $1,000 accounts receivable from J. Jones
On Jan. 1, the company bought a car for $30,000 on notes payable at 6%
The company paid 19,000 of its accounts payable in cash
The company bought 900 units of inventory for $21 each in cash
The company bought a 1 year insurance policy for $2400 on October 1
The company paid rent for the months January through December of $18,000
On July 1, the company bought rights to a patent for $20,000 The patent has ten more years of useful life
On Dec 1, the company paid dividends for $1,000 to it’s shareholders.
On Dec. 1, the company bought another 200 units of inventory for $22 on account
On Dec. 15, the company sold 1,300 units for $30 each. 1000 were sold for cash, and 300 on account. [The company accounts for its inventory on the FIFO basis, so the first items bought are assumed to be the first ones sold.]
The company decided to recorded depreciation on the equipment. The equipment is one year old. It had a cost of $9,000, salvage value of $1,000, and an expected useful life of 4 years. Use straight line to depreciate it
The company recorded depreciation on the car, using the straight line method, assuming it had a five year life, and salvage value of $6,000.
The company made the appropriate adjustment to reflect the fact the insurance policy only had nine more months left of effectiveness.
The company accrued the interest that had been built up on the long-term notes. The money had been borrowed on January 1, 2017. No payments of interest or principal were due until some time in 2018.
The company made the appropriate entry to record amortization on the patent on December 31.
On December 31, the company made an adjustment for the rent for December 2017.
The company recorded bad debt expense of 6% of the accounts receivable.
In: Accounting
On November 1, 2017, Splish Brothers Inc. had the following account balances. The company uses the perpetual inventory method.
Debit | Credit | |||||
---|---|---|---|---|---|---|
Cash | $7,920 | Accumulated Depreciation—Equipment | $880 | |||
Accounts Receivable | 1,971 | Accounts Payable | 2,992 | |||
Supplies | 757 | Unearned Service Revenue | 3,520 | |||
Equipment | 22,000 | Salaries and Wages Payable | 1,496 | |||
$32,648 | Common Stock | 17,600 | ||||
Retained Earnings | 6,160 | |||||
$32,648 |
Nov. | 8 | Paid $3,124 for salaries due employees, of which $1,628 is for November and $1,496 is for October. | |
---|---|---|---|
10 | Received $1,672 cash from customers in payment of account. | ||
11 | Purchased merchandise on account from Dimas Discount Supply for $7,040, terms 2/10, n/30. | ||
12 | Sold merchandise on account for $4,840, terms 2/10, n/30. The cost of the merchandise sold was $3,520. | ||
15 | Received credit from Dimas Discount Supply for merchandise returned $264. | ||
19 | Received collections in full, less discounts, from customers billed on sales of $4,840 on November 12. | ||
20 | Paid Dimas Discount Supply in full, less discount. | ||
22 | Received $2,024 cash for services performed in November. | ||
25 | Purchased equipment on account $4,400. | ||
27 | Purchased supplies on account $1,496. | ||
28 | Paid creditors $2,640 of accounts payable due. | ||
29 | Paid November rent $330. | ||
29 | Paid salaries $1,144. | ||
29 | Performed services on account and billed customers $616 for those services. | ||
29 | Received $594 from customers for services to be performed in the future. |
|
In: Accounting
Max has interest income of $5,000 annually from a trust fund set up per his grandfather Ed’s will.
Will Max’s income be taxed? If so, how? Is there a way to shift income from the parents to the child and would it be a good idea in this case? Why or why not
In: Accounting
Case 23.2 – An Ethical Dilemma
Scenario: Beta Computers is experiencing financial difficulties attributed to declining sales of its mainframe computer systems. Several years ago, the company obtained a large loan from Midland State Bank. The covenants of the loan agreement strictly state that if Beta is unable to maintain a current ratio of 3:1, a quick ratio of 1:1, and a return on assets of 12 percent, the bank will exercise its right to liquidate the company’s assets in settlement of the loan. To monitor Beta’s performance, the bank demands quarterly financial statements that have been reviewed by an independent CPA.
Nick Price, Beta’s CEO, has just reviewed the company’s master budget projections for the first two quarters of the current year. What he has learned is disturbing. If sales trends continue, it appears that Beta will be in violation of its loan covenants by the end of the second quarter. If these projections are correct, the bank might foreclose on the company’s assets. As a consequence, Beta’s 750 employees will join the ranks of the unemployed.
In February of the current year, Rembrant International contacted Beta to inquire about purchasing a custom-configured mainframe computer system. Not only would the sale generate over a million dollars in revenue, it would put Beta back in compliance with its loan covenants. Unfortunately, Rembrant International is an extremely bad credit risk, and the likelihood of collecting on the sale is slim. Nonetheless, Nick Price approved the sale on February 1, which resulted in the recording of a $1.4 million receivable.
On March 31, Edgar Gamm, CPA, arrived at Beta’s headquarters. In Gamm’s opinion, the $1.4 million receivable from Rembrant International should immediately be written off as uncollectible. Of course, if the account is written off, Beta will be in violation of its loan covenants and the bank will soon foreclose. Gamm told Price that it is his professional duty to prevent any material misstatement of the company’s assets.
Price reminded Gamm that if the account is written off, 750 employees will be out of work, and that Gamm’s accounting firm probably could not collect its fee for this engagement. Price then showed Gamm Beta’s master budget for the third and fourth quarters of the current year. The budget indicated a complete turnaround for the company. Gamm suspected, however, that most of the budget’s estimates were overly optimistic.
Initial Post – As an employee, write an internal memo to your manager addressing the following:
Should Gamm insist that the Rembrant International account be classified as uncollectible? Should the optimistic third and fourth quarter master budget projections influence his decision? What would you do if you were in his position? Defend your actions.
If you were the president of Midland State Bank, what would you do if you discovered that the Rembrant International account constituted a large portion of Beta’s reported liquid assets and sales activity for the quarter? How would you react if Edgar Gamm’s accounting firm had permitted Beta to classify the account as collectible?
In: Accounting
Roth Contractors Corporation was incorporated on December 1, 2019 and had the following transactions during December: Part A a. Issued common stock for $5,000 cash b. Paid $1,200 cash for three months’ rent: December 2019; January and February 2020 c. Purchased a used truck for $10,000 on credit (recorded as an account payable) d. Purchased $1,000 of supplies on credit. These are expected to be used during the month (recorded as expense) e. Paid $1,800 for a one-year truck insurance policy, effective December 1 f. Billed a customer $4,500 for work completed to date g. Collected $800 for work completed to date h. Paid the following expenses in cash: advertising, $350; interest, $100; telephone, $75; truck operating, $425; wages, $2,500 i. Collected $2,000 of the amount billed in f above j. Billed customers $6,500 for work completed to date k. Signed a $9,000 contract for work to be performed in January 2020 l. Paid the following expenses in cash: advertising, $200; interest, $150; truck operating, $375; wages, $2,500 m. Collected a $2,000 advance on work to be done in January (the policy of the corporation is to record such advances as revenue at the time they are received) n. Received a bill for $100 for electricity used during the month (recorded as utilities expense). Required: 1. Open general ledger T-accounts for the following: Cash, Accounts Receivable, Prepaid Insurance, Prepaid Rent, Truck, Accounts Payable, Common Stock, Repair Revenue, Advertising Expense, Interest Expense, Supplies Expense, Telephone Expense, Truck Operating Expense, Utilities Expense, and Wages Expense. General ledger account numbers are not necessary. 2. Prepare journal entries to record the December transactions. General ledger account numbers and descriptions are not needed. 3. Post the entries to general ledger T-accounts. Part B The following information relates to December 31, 2019: o. One month of the prepaid insurance has expired. p. The December portion of the rent paid on December 1 has expired. q. A physical count indicates that $350 of supplies is still on hand. r. The amount collected in transaction m is unearned at December 31. s. Three days of wages for December 29, 30, and 31 are unpaid, amounting to $1,500. These will be paid in January. t. The truck has an estimated useful life of 4 years. u. Income taxes expense is $500. This amount will be paid in the next fiscal year. Required: 4. Open additional general ledger T-accounts for the following: Unused Supplies, Accumulated Depreciation, Wages Payable, Unearned Revenue, Income Taxes Payable, Depreciation Expense, Insurance Expense, Rent Expense, and Income Taxes Expense. General ledger account numbers are not necessary. 5. Prepare all necessary adjusting entries. General ledger account numbers and descriptions are not necessary. 6. Post the entries to general ledger T-accounts and calculate balances. 7. Prepare an adjusted trial balance at December 31. 8. Assume the fiscal year-end is December 31, 2019. Prepare an income statement, statement of changes in equity, and balance sheet. 9. Prepare closing entries and a post-closing trial balance at December 31, 2019.
In: Accounting
On January 1, 2019, the general ledger of a company includes the
following account balances:
Accounts | Debit | Credit | ||||
Cash | $ | 76,000 | ||||
Accounts Receivable | 47,000 | |||||
Allowance for Uncollectible Accounts | $ | 7,000 | ||||
Inventory | 36,000 | |||||
Building | 76,000 | |||||
Accumulated Depreciation | 16,000 | |||||
Land | 206,000 | |||||
Accounts Payable | 26,000 | |||||
Notes Payable (7%, due in 3 years) | 42,000 | |||||
Common Stock | 106,000 | |||||
Retained Earnings | 244,000 | |||||
Totals | $ | 441,000 | $ | 441,000 | ||
The company accounts for all inventory transactions using the
perpetual FIFO method. Purchases and sales of inventory are
recorded using the gross method for cash discounts. The $36,000
beginning balance of inventory consists of 400 units, each costing
$90. During January 2019, the company had the following
transactions:
During January 2019, the following transactions occur:
January | 2 | Lent $26,000 to an employee by accepting 6% note due in six months. | ||
January | 5 | Purchased 3,800 units of inventory on account for $380,000 ($100 each) with terms 1/10, n/30. | ||
January | 8 | Returned 140 defective units of inventory purchased on January 5. | ||
January | 15 | Sold 3,600 units of inventory on account for $432,000 ($120 each) with terms 2/10, n/30. | ||
January | 17 | Customers returned 100 units sold on January 15. These units are placed in inventory to be sold in the future. | ||
January | 20 | Received cash from customers on accounts receivable. This amount includes $42,000 from 2018 plus amount receivable on sale of 3,000 units sold on January 15. | ||
January | 21 | Wrote off remaining accounts receivable from 2018. | ||
January | 24 | Paid on accounts payable. The amount includes the amount owed at the beginning of the period plus the amount owed from purchase of 3,400 units on January 5. | ||
January | 28 | Paid cash for salaries during January, $34,000. | ||
January | 29 | Paid cash for utilities during January, $16,000. | ||
January | 30 | Paid dividends, $9,000. |
The following information is available on January 31, 2019.
Need help with recording transactions
In: Accounting
In January 2018, Dunder Mifflin Inc. bought property in downtown Scranton. The property contains land, a warehouse, and some limited equipment. Property values in the area have been increasing rapidly over the past decade. The price paid for the property needs to be allocated to the items purchased and the controller and financial vice president are having that discussion. Dunder Mifflen’s controller wants to allocate the largest proportion of the cost to the warehouse and equipment while the financial VP, David Wallace, argues that the allocation should recognize the steadily increasing value of the land by allocating the highest value to the land. Assume that the same depreciation methods are used for financial and tax return purposes.
In: Accounting
Central City, Inc. has incurred a $50,000 loss on property due to an earthquake. Earthquakes have occurred in this region. What amount will be reported for this loss on company's income statement, assuming a 30% tax rate?
A) $50,000
B) $35,000
C) $15,000
D) Zero, due to the fact that this event is infrequent in nature.
In: Accounting