Since this is your first day, you’re relieved to find that the company has only three employees in the main office that have not yet been reviewed. The partial payroll register for these employees is below. Some data is missing, and other data may be in error. Each of these employees earns $18.00 per hour, and the company follows the Fair Labor Standards Act in paying overtime to its employees. You have been assured that the Federal Income Tax withholding and check numbers are correct, so you do not need to check those figures.

Note 1: For 2015, the social security tax rate was 6.2% and the medicare tax rate was 1.45%. However, for text examples and problems, including this one, use rates of 6% for social security tax and 1.5% for medicare tax.

Note 2: Earnings subject to the social security tax are limited to an annual threshold amount, but for text examples and problems, including this one, assume all accumulated annual earnings are below this threshold and subject to the tax.

Review the payroll register below, which was prepared by your predecessor, and then scroll down to complete a corrected payroll register. If there is no amount or an amount is zero, enter “0”. Round your interim computations to the nearest cent, if required.

Copperfield and Company issued a 90-day, 5.00% note for $190,000 to a creditor on account. The previous clerk entered the following journal entries to record the note on July 10, and the payment of the note at maturity.

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JOURNAL

You notice that the journal entry for recording the note on July 10 is correct, but the entry for the payment of the note at maturity (including interest) did not have a date and was not correct.

Show the journal entry for payment of the note at maturity as it should have been entered. Don’t forget to include the date. Assume a 360-day year.

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JOURNAL

Copperfield and Company has decided to provide a warranty on its products. The previous clerk left a note with his files on this new warranty on glass breakage. He decided that an entry for warranty expense was not necessary, with the following reasoning:

“Our product is the finest in the world, and thus the contingency of a warranty replacement for breakage is remote. Under accounting standards, the proper treatment for a remote likelihood of occurrence is to take no action. Accordingly, in my professional judgment, no journal entry should be made for warranty expense.”

You should review the previous clerk’s notes and evaluate his decision. After refreshing your memory on the treatment of contingent liabilities, what action will you take?

a. Journalize an adjusting entry debiting Product Warranty Expense and crediting Product Warranty Payable. Assume that a reasonable estimate of the warranty cost can be determined by an examination of prior breakage and replacement data.

b. Make no entry, but disclose the possible warranty liability amount in the notes to the company financial statements.

c. Make no entry; the previous clerk is correct that there is a remote chance of any breakage.

d. Since there’s no way to accurately determine the amount of breakage that might occur, no entry or disclosure is required.

What are the types of ratios and which ratio do you think is most important in analyzing the financial condition and performance of a company?

What are the main differences in the role of financial accounting and managerial accounting?

1. Determining missing items in return and residual income computations

   Data for Uberto Company are presented in the following table of rates of return on investment and residual incomes:

   Invested Assets		Income from Operations		Return on Investment		Minimum Return		Minimum Acceptable Income from Operations		Residual Income
   $950,000		$228,000		(a)		13%		(b)		(c)
   $460,000		(d)		(e)		(f)		$55,200		$18,400
   $340,000		(g)		14%		(h)		$37,400		(i)
   $260,000		$52,000		(j)		12%		(k)		(l)

   Determine the missing values, identified by the letters above. For all amounts, round to the nearest whole number.

   a.	%
   b.	$
   c.	$
   d.	$
   e.	%
   f.	%
   g.	$
   h.	%
   i.	$
   j.	%
   k.	$
   l.	$

Check My Work

What are the main objectives of comparative analysis and why are they important to external users of the financial statements, such as investors?

Tybee Industries Inc. uses a job order cost system. The following data summarize the operations related to production for January 2016, the first month of operations:

On July 1, 2016, Fisher Company issued 9% bonds in the face amount of $5,000,000, which mature on July 1, 2022. The bonds were issued for $4,782,217 to yield 10%. Fisher uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2019, the unamortized bond discount should be

Heidi Birmingham and James T. Roberts have decided to create a business. They have financing available and have a well-developed business plan. However, they have not yet decided which type of legal business structure would be best for them.

Required

Write a memo to these two individuals outlining the types of situations in which the partnership form of legal structure would be the best choice

Sweetwater Company manufactures two products, Mountain Mist and Valley Stream. The company prepares its master budget on the basis of standard costs. The following data are for March:

Standards Mountain Mist Valley Stream
Direct materials 3 ounces at $14.80 per ounce 4 ounces at $17.20 per ounce
Direct labor 5 hours at $60.20 per hour 6 hours at $78 per hour
Variable overhead (per direct labor-hour) $48 $53.20
Fixed overhead (per month) $364,425 $399,360
Expected activity (direct labor-hours) 6,450 7,800
Actual results
Direct material (purchased and used) 3,800 ounces at $14.20 per ounce 4,700 ounces at $19.00 per ounce
Direct labor 4,970 hours at $62.50 per hour 7,480 hours at $82.60 per hour
Variable overhead $257,550 $385,510
Fixed overhead $323,950 $399,100
Units produced (actual) 1,070 units 1,220 units

Required:

a. Compute a variance analysis for each variable cost for each product. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

b. Compute a fixed overhead variance analysis for each product. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Rico company issued $400,000, 9%, 20 year bonds on january 1, 2017, at 103. Interest is payable annually on January 1. Rico uses straight-line amortization for bond premium or discount.

Instructions

Show WORK

Prepare the journal entries to record the following.

a) The issuance of the bonds

b) The accrual of interest and the premium amortization on december 31, 2017

c) The payment of interest on january 1, 2018

d) The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.

During the first month of its current fiscal year, Green Co. incurred repair costs of $16,000 on a machine that had 4 years of remaining depreciable life. The repair cost was inappropriately capitalized. Green Co. reported operating income of $164,000 for the current year.

Required:

a. Assuming that Green Co. took a full year's straight-line depreciation expense in the current year, calculate the operating income that should have been reported for the current year.

b. Assume that Green Co.'s total assets at the end of the prior year and at the end of the current year were $941,000 and $1,024,000, respectively. Calculate ROI (based on operating income) for the current year using the originally reported data and then using corrected data. (Round your answers to 1 decimal place.)

c. Indicate the effect on ROI of subsequent years if the error is not corrected.

Statement of Cash Flows—Indirect Method

The comparative balance sheet of Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows:

Additional data obtained from an examination of the accounts in the ledger for 20Y9 are as follows:

Equipment and land were acquired for cash.

There were no disposals of equipment during the year.

The investments were sold for $101,980 cash.

The common stock was issued for cash.

There was a $71,940 credit to Retained Earnings for net income.

There was a $45,520 debit to Retained Earnings for cash dividends declared.

Required:

Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

Feedback

The statement of cash flows reports three types of cash flow activities, as follows:
1. Cash flows from operating activities are the cash flows from transactions that affect the net income of the company.
2. Cash flows from (used for) investing activities are the cash flows received from or used for transactions that affect investments in the noncurrent assets of the company.
3. Cash flows from (used for) financing activities are the cash flows received from or used for transactions that affect the debt and equity of the company.

The indirect method reports cash flows from operating activities by beginning with net income and adjusting it for revenues and expenses that do not involve the receipt or payment of cash. A primary advantage of the indirect method is that it reconciles the differences between net income and net cash flows from operations.

Calculate the increases and decreases in the current asset/liability accounts over the period. How do these increases or decreases impact the amount of cash a company has? Were there any purchases or sales of noncurrent assets during the year? If there were any sales of noncurrent assets, were these noncurrent assets sold at what the company had initially paid? Or were the assets sold for more or less than the book value? Did the company engage in any activities that affected the equity or debt in their company?

Last year, CMC recorded a deferred tax asset related to product warranties and a deferred tax asset related to accelerated depreciation. A 75% valuation allowance was also established. However, with an upcoming international expansion, Connor and Martin wonder if the company can now reduce or eliminate the valuation allowance. In addition, Connor and Martin are considering alternative financing arrangements for equipment to be used in the upcoming expansion. However, they have not used equipment leases in the past and would like more information. For their second request, they would like you to research the following topics:

What are the sources of income that may be relied upon to remove the need for a valuation allowance?

What are tax planning strategies? Could CMC possibly employ a tax-planning strategy to support reducing its valuation allowance?

How do IFRS differ from GAAP regarding accounting for income taxes? Are there any major issues?

What are the capitalization criteria for a capital lease?

What comprises the lessee's minimum lease payments? What is excluded?

How do IFRS differ from GAAP regarding accounting for leases? Are there any major issues?

Memorandum Mechanics should be as follows:

The body of the memorandum should be a professional presentation centered on clear and concise writing. The responses to the questions should be detailed, well researched, and specifically related to CMC's industry.

The memorandum itself does not have to be in APA format. However, you should have in-text citations and a reference page. Both of these items should be in APA format.

Use the FASB Codification and IFRS to address all technical accounting issues presented in the questions, being certain to reference the applicable sections of the Codification and IFRS in your report. You may quote directly from the Codification and IFRS as long as all direct quotes are included in quotation marks.

Any other sources used to support your responses should similarly be properly documented. You should have other credible sources in addition to the Codification and IFRS.

Tractor Corporation produces toy tractors. The company uses the following direct cost categories:

Actual performance and budgeted performance for the company is shown below:

Actual output: (in units) 5,000

Direct Materials:

Direct Manufacturing Labour:

Direct Marketing Labour:

Question 1: What is the price variance of the direct materials?

Question 2: What is the direct manufacturing labour efficiency variance?