II. Notes Payable. Rubio Company had the following borrowing activity. Rubio has a borrowing rate of 6 percent on its other debt.

A. On June 30, 2016, Rubio issued a non-interest bearing, 10 year note of $50,000 to acquire land for expansion.

1. Calculate the cash equivalent price of the land (assuming 6% is the market rate).

2. Prepare the journal entry to record the acquisition on June 30.

B. On January 1, 2016, Rubio acquired equipment by issuing an $80,000, 2 percent (low-interest bearing), 5 year note, with interest paid annually, starting December 31, 2016.

1. Calculate the cash equivalent price of the equipment (assuming 6% is the market rate).

2. Prepare the journal entry to record the acquisition on January 1.

3. Prepare the journal entry to record the interest payment on December 31, 2016, assuming the effective interest method.

Reid Company is considering the production of a new product. The expected variable cost is $27 per unit. Annual fixed costs are expected to be $810,000. The anticipated sales price is $72 each.

Determine the break-even point in units and dollars using each of the following:

a. Use the equation method.

b. Use the contribution margin per unit approach.

c. Use the contribution margin ratio approach. (Do not round intermediate calculations. Round "Contribution margin ratio" to 1 decimal place. (i.e., .234 should be entered as 23.4))

Use the equation method.

The University of Cincinnati Center for Business Analytics is an outreach center that collaborates with industry partners on applied research and continuing education in business analytics. One of the programs offered by the center is a quarterly Business Intelligence Symposium. Each symposium features three speakers on the real-world use of analytics. Each of the corporate members of the center (there are currently 10) receives eight free seats to each symposium. Nonmembers wishing to attend must pay $75 per person. Each attendee receives breakfast, lunch, and free parking. The following are the costs incurred for putting on this event:

Which of the following statements is true regarding the taxation of Social Security benefits?

a.85% is the maximum amount of taxable Social Security benefits.

b.50% is the maximum amount of taxable Social Security benefits.

c.If a taxpayer’s only source of income is $10,000 of Social Security benefits, then 50% of the benefits are taxable.

d.If a taxpayer’s only source of income is $10,000 of Social Security benefits, then 85% of the benefits are taxable.

Internal Audit

Question 1

The following information is extracted from a draft of an audit report prepared upon the completion of an audit of the inventory warehousing procedures for a division.

Findings

[#5]

We performed extensive tests of inventory record-keeping and quantities on hand. Based on our tests, we have concluded that the division carries a large quantity of excess inventory, particularly in the area of component parts. We expect this is due to the conservatism of local management that does not want to risk shutting down production if the goods are not on hand. However, as noted earlier in the report, the excess inventory has led to a higher than average level of obsolete inventory write-downs at this division. We recommend that production forecasts be established, along with lead times for various products, and used in conjunction with economic order quantity concepts to order and maintain appropriate inventory levels.

[#6]

We observed that receiving reports were not filled out when the receiving department became busy. Instead, the receiving manager would fill out reports after work and forward them to accounts payable. There is a risk that all items received might not be recorded, or that failing to initially record might result in some items being diverted to other places. During our tests, we noted many instances in which accounts payable had to call to receiving to obtain a receiving report. We recommend that receiving reports be prepared.

[#7]

Inventory is messy. We recommend that management communicate the importance of orderly inventory management techniques to warehouse personnel to avoid the problems noted earlier about: (1) locating inventory when needed for production; and (2) incurring unusually large amounts of inventory write-offs because of obsolescence.

[#8]

We appreciate the cooperation of divisional management. We intend to discuss our findings with them and follow up by communicating your reaction to those recommendations included within this report. Given additional time for analysis, we feel there are substantial opportunities available for significant cost savings and we are proud to be a part of the process.

Required

1. Identify deficiencies in paragraphs [#5] and [#7] relating to the completeness of the finding and issues in writing.
2. Identify a deficiency in paragraph [#6] relating to the completeness of a finding.
3. Identify deficiencies in paragraph [#8].

Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been experiencing financial difficulty for some time. The company’s contribution format income statement for the most recent month is given below:

Sales (13,100 units × $30 per unit) $ 393,000

Variable expenses 235,800

Contribution margin 157,200

Fixed expenses 175,200

Net operating loss $ (18,000 )

Required:

1. Compute the company’s CM ratio and its break-even point in unit sales and dollar sales.

2. The president believes that a $6,500 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $90,000 increase in monthly sales. If the president is right, what will be the increase (decrease) in the company’s monthly net operating income?

3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $31,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating income (loss)?

4. Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would grow sales. The new package would increase packaging costs by 0.60 cents per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,800?

5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $53,000 each month.

a. Compute the new CM ratio and the new break-even point in unit sales and dollar sales.

b. Assume that the company expects to sell 21,000 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are. (Show data on a per unit and percentage basis, as well as in total, for each alternative.)

c. Would you recommend that the company automate its operations (Assuming that the company expects to sell 21,000)?

1.

Dividends Per Share

Oceanic Company has 20,000 shares of cumulative preferred 3% stock, $50 par and 50,000 shares of $10 par common stock. The following amounts were distributed as dividends:

Determine the dividends per share for preferred and common stock for each year. Round all answers to two decimal places. If an answer is zero, enter '0'.

2.  

Entries for Issuing Stock

On January 22, Muir Corporation issued for cash 15,000 shares of no-par common stock at $25. On February 14, Muir issued at par 5,000 shares of 6%, $75 par preferred stock for cash. On August 30, Muir Corporation issued for cash 12,000 shares of preferred 6% stock, $75 par at $84.

Journalize the entries to record the January 22, February 14, and August 30 transactions.
For a compound transaction, if an amount box does not require an entry, leave it blank.

3. Entries for Issuing Par Stock

Forten Company, a merchandiser, recently completed its calendar-year 2017 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company’s income statement and balance sheets follow.

Problem 12-5AB Direct: Statement of cash flows LO P1, P3, P5

Additional Information on Year 2017 Transactions

The loss on the cash sale of equipment was $19,125 (details in b).

Sold equipment costing $88,875, with accumulated depreciation of $44,125, for $25,625 cash.

Purchased equipment costing $110,375 by paying $58,000 cash and signing a long-term note payable for the balance.

Borrowed $5,400 cash by signing a short-term note payable.

Paid $57,125 cash to reduce the long-term notes payable.

Issued 3,900 shares of common stock for $20 cash per share.

Declared and paid cash dividends of $52,900.

Required:
Prepare a complete statement of cash flows; report its operating activities according to the direct method. (Amounts to be deducted should be indicated with a minus sign.)
  

Sweeten Company had no jobs in progress at the beginning of March and no beginning inventories. The company has two manufacturing departments--Molding and Fabrication. It started, completed, and sold only two jobs during March—Job P and Job Q. The following additional information is available for the company as a whole and for Jobs P and Q (all data and questions relate to the month of March):

Sweeten Company had no underapplied or overapplied manufacturing overhead costs during the month.

Required:

For questions 1-8, assume that Sweeten Company uses a plantwide predetermined overhead rate with machine-hours as the allocation base. For questions 9-15, assume that the company uses departmental predetermined overhead rates with machine-hours as the allocation base in both departments.

2. How much manufacturing overhead was applied to Job P and how much was applied to Job Q?

3.What was the total manufacturing cost assigned to Job P?

4.If Job P included 20 units, what was its unit product cost?

5.What was the total manufacturing cost assigned to Job Q?

6.If Job Q included 30 units, what was its unit product cost?

7.Assume that Sweeten Company used cost-plus pricing (and a markup percentage of 80% of total manufacturing cost) to establish selling prices for all of its jobs. What selling price would the company have established for Jobs P and Q? What are the selling prices for both jobs when stated on a per unit basis assuming 20 units were produced for Job P and 30 units were produced for Job Q?

8.What was Sweeten Company’s cost of goods sold for March

9.What were the company’s predetermined overhead rates in the Molding Department and the Fabrication Department?

10.How much manufacturing overhead was applied from the Molding Department to Job P and how much was applied to Job Q?

11.How much manufacturing overhead was applied from the Fabrication Department to Job P and how much was applied to Job Q?

12.If Job P included 20 units, what was its unit product cost?

13.If Job Q included 30 units, what was its unit product cost?

14.Assume that Sweeten Company used cost-plus pricing (and a markup percentage of 80% of total manufacturing cost) to establish selling prices for all of its jobs. What selling price would the company have established for Jobs P and Q? What are the selling prices for both jobs when stated on a per unit basis assuming 20 units were produced for Job P and 30 units were produced for Job Q?

15.What was Sweeten Company’s cost of goods sold for March?

Use the information below to answer questions 1-5.

Required: (Answer each question)
1. What is the total amount of traceable fixed manufacturing overhead for each of the two products?

2. What is the company’s total amount of common fixed expenses?

3. Assume that Cane expects to produce and sell 80,000 Alphas during the current year. One of Cane’s sales representatives has found a new customer who is willing to buy 10,000 additional Alphas for a price of $80 per unit. What is the financial advantage (disadvantage) of accepting the new customer’s order?

4. Assume that Cane expects to produce and sell 90,000 Betas during the current year. One of Cane’s sales representatives has found a new customer who is willing to buy 5,000 additional Betas for a price of $39 per unit. What is the financial advantage (disadvantage) of accepting the new customer’s order?

5. Assume that Cane expects to produce and sell 95,000 Alphas during the current year. One of Cane’s sales representatives has found a new customer who is willing to buy 10,000 additional Alphas for a price of $80 per unit; however pursuing this opportunity will decrease Alpha sales to regular customers by 5,000 units. What is the financial advantage (disadvantage) of accepting the new customer’s order?

On July 31, 2017, Coronado Company engaged Minsk Tooling Company to construct a special-purpose piece of factory machinery. Construction was begun immediately and was completed on November 1, 2017. To help finance construction, on July 31 Coronado issued a $303,600, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $208,600 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Coronado made a final $95,000 payment to Minsk. Other than the note to Netherlands, Coronado’s only outstanding liability at December 31, 2017, is a $28,200, 8%, 6-year note payable, dated January 1, 2014, on which interest is payable each December 31.

Collapse question part

(a)

Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2017.

Interest revenue

$

Weighted-average accumulated expenditures

$

Avoidable interest

$

Interest capitalized

$