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:

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 $6,100 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $85,000 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 $36,000 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 $0.70 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,300?

5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $60,000 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 20,200 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 20,200)?

What would be the correct closing entries for the following:

1. The notes payable balance relates to a bank loan obtained in 2018 that is payable in full on august 31,2023. the loan agreement specifies that Clarke pay interest annually on august 31 at a rate of 7.05%. Clarke's bookkeeper made the proper entry for the first interest payment.
2. On September 20,2019, Clarke paid $53,952 for ads to run evenly over a 10-month period, starting October 1,2019.
3. In November 2019, Clarke received $129,320 from a client as a deposit on a major new engagement. As of December 31, 2019, Clarke had completed $41,715 of these services.
4. Clarke operates 5 days a week, Mondays through Fridays. Employees are paid each Monday, for hours worked through the previous Friday. On Monday, December 30, 2019, the last pay day in 2019, Clarke paid its employees for hours worked during the week of December 23-27. The employees then worked their regular schedule through the end of the year. Clarke’s payroll averages $10,325 per day.
5. On June 1, 2019, Clarke signed a lease to rent additional building space. On that date, Clarke prepaid the first 18 months of rent totaling $59,202. The prepayment covers the period June 2019 through November 2020. Note – Contrary to the company’s normal practice, Clarke’s bookkeeper recorded the prepayment into the Rent Expense account. Give the adjusting entry needed when a company uses the expense approach to record a payment in advance.
6. Clarke performed $118,731 of engineering services for several clients in December 2019 that it has not yet billed, recorded or collected.
7. Clarke’s Office Supplies account at the beginning of 2019 had a balance of $14,320. In August, the company purchased an additional $25,095 of supplies. A physical count at year-end 2019 shows that $29,170 of the supplies remain on hand.
8. Clarke purchased its buildings in 2011 and its equipment in 2016. Clarke depreciates its fixed assets according to the straight-line method. For the buildings, it uses estimates of 40 years for the useful life and $180,000 for the salvage value. For the equipment, it uses estimates of 8 years for the useful life and $60,000 for the salvage value.
9. Clarke estimates that 8.77% of the 2019 year-end accounts receivable balance will not be collected.
10. The company’s income tax rate for the year is 25%. (Hint – The income tax rate is applied to the company’s income after all revenues and expenses have been considered except for the income tax charge.)

These are the adjusting entries:

Decision Problem 1
Your friend, Amin Akmali, has asked your advice about the effects that certain business
transactions will have on his business. His business, Car Finders, finds the best deals on
automobiles for clients. Time is short, so you cannot journalize transactions. Instead, you
must analyze the transactions and post them directly to T-accounts. Akmali will continue in
the business only if he can expect to earn monthly net income of $8,000. The business had
the following transactions during March 2017:
a. Akmali deposited $50,000 cash in a business bank account.
b. The business borrowed $8,000 cash from the bank, which is recorded as a note payable
due within one year.
c. Purchased for cash a vehicle to drive clients to appointments, $27,000.
d. Paid $1,600 cash for supplies.
e. Paid cash for advertising in the local newspaper, $1,200.
f. Paid the following cash expenses for one month: commission, $12,400; office rent, $800;
utilities, $600; gas, $1,000; interest, $200.
g. Earned revenue on account, $20,600.
h. Earned $7,500 revenue and received cash.
i. Collected cash from customers on account, $2,400.
Required
1. Open the following T-accounts: Cash; Accounts Receivable; Supplies; Vehicle; Notes
Payable; Amin Akmali, Capital; Advising Revenue; Advertising Expense; Interest
Expense; Rent Expense; Commission Expense; Gas Expense; Utilities Expense.
2. Record the transactions directly in the T-accounts without using a journal. Identify each
transaction by its letter.
3. Prepare an unadjusted trial balance at March 31, 2017. List expenses alphabetically.
4. Compute the amount of net income or net loss for this first month of operations. Would
you recommend Akmali continue in business?

Reasonable and necessary business expenditures that are not completely deductible in the year incurred will be (1) depreciated, (2) amortized, or (3) capitalized. Briefly define and provide an example of an expenditure to each.

Sage Corporation has pretax financial income (or loss) from 2015 through 2021 as follows.

Pretax financial income (loss) and taxable income (loss) were the same for all years since Sage has been in business. In recording the benefits of a loss carryforward, assume that it is more likely than not that the related benefits will be realized.

Indicate what the income tax expense portion of the income statement for 2016 should look like. Assume all income (loss) relates to continuing operations.

How should the income tax expense section of the income statement for 2017 appear?

What entry for income taxes should be recorded in 2020​​​​​​​

How should the income tax expense section of the income statement for 2020 appear?

Schedule of Cash Collections of Accounts Receivable OfficeMart Inc. has "cash and carry" customers and credit customers. OfficeMart estimates that 20% of monthly sales are to cash customers, while the remaining sales are to credit customers. Of the credit customers, 20% pay their accounts in the month of sale, while the remaining 80% pay their accounts in the month following the month of sale. Projected sales for the next three months are as follows: October $115,000 November 144,000 December 210,000 The Accounts Receivable balance on September 30 was $77,000. Prepare a schedule of cash collections from sales for October, November, and December. Round all calculations to the nearest whole dollar. OfficeMart Inc. Schedule of Cash Collections from Sales For the Three Months Ending December 31 October November December Receipts from cash sales: Cash sales $ $ $ September sales on account: Collected in October October sales on account: Collected in October Collected in November November sales on account: Collected in November Collected in December December sales on account: Collected in December Total cash receipts $ $ $

On December 1, Year 1, John and Patty Driver formed a corporation called Susquehanna Equipment Rentals. The new corporation was able to begin operations immediately by purchasing the assets and taking over the location of Rent-It, an equipment rental company that was going out of business. The newly formed company uses the following accounts.

The corporation performs adjusting entries monthly. Closing entries are performed annually on December 31. During December, the corporation entered into the following transactions.

Data for Adjusting Entries

1. The advance payment of rent on December 1 covered a period of three months.
2. The annual interest rate on the note payable to Rent-It is 6 percent.
3. The rental equipment is being depreciated by the straight-line method over a period of eight years.
4. Office supplies on hand at December 31 are estimated at $720.
5. During December, the company earned $4,440 of the rental fees paid in advance by McNamer Construction Company on December 8.
6. As of December 31, six days’ rent on the backhoe rented to Mission Landscaping on December 26 has been earned.
7. Salaries earned by employees since the last payroll date (December 26) amounted to $1,680 at month-end.
8. It is estimated that the company is subject to a combined federal and state income tax rate of 40 percent of income before income taxes (total revenue minus all expenses other than income taxes). These taxes will be payable in Year 2.

Northwest Building Products (NBP) manufactures two lumber products from a joint milling process: residential building lumber (RBL) and commercial building lumber (CBL). A standard production run incurs joint costs of $390,000 and results in 80,000 units of RBL and 100,000 units of CBL. Each RBL sells for $10 per unit and each CBL sells for $15 per unit.

Required: 1. Assuming that no further processing occurs after the split-off point, how much of the joint costs are allocated to commercial lumber (CBL) on a physical measure method basis?

2. If no further processing occurs after the split-off point, how much of the joint cost is allocated to the residential lumber (RBL) using a sales value at split-off method?

3. Assume that the CBL is not marketable at split-off but must be planned and sized at a cost of $270,000 per production run. During this process, 10,000 units are unavoidably lost and have no value. The remaining units of CBL are salable at $17 per unit. The RBL, although salable immediately at the split-off point, is coated with a tarlike preservative that costs $170,000 per production run. The RBL is then sold for $11 each. Using the net realizable value basis, how much of the completion costs should be assigned to each unit of CBL?

4. Based on information in requirement 3, should NBP choose to process RBL beyond split-off?

a. Yes because it can charge a higher price for the residential lumber after the additional processing.

b. Yes because total revenue for the residential lumber exceeds the incremental cost of the additional processing.

c. No because the increase in sales revenue is less than the extra processing costs.

d. No because additional processing results in an unavoidable loss of 10,000 units of CBL.

Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South East Asia. Three cubic centimeters (cc) of solvent H300 are required to manufacture each unit of Supermix, one of the company’s products. The company now is planning raw materials needs for the third quarter, the quarter in which peak sales of Supermix occur. To keep production and sales moving smoothly, the company has the following inventory requirements: The finished goods inventory on hand at the end of each month must equal 4,000 units of Supermix plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 14,200 units. The raw materials inventory on hand at the end of each month must equal one-half of the following month’s production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 78,000 cc of solvent H300. The company maintains no work in process inventories. A monthly sales budget for Supermix for the third and fourth quarters of the year follows. Budgeted Unit Sales July 51,000 August 56,000 September 66,000 October 46,000 November 36,000 December 26,000 Required: 1. Prepare a production budget for Supermix for the months July, August, September, and October. 3. Prepare a direct materials budget showing the quantity of solvent H300 to be purchased for July, August, and September, and for the quarter in total.

how do you do statement of cash flows

Background: MS-DRGs are used or reimbursement in the inpatient setting as part of the inpatient prospective payment system (IPPS). Only one MS-DRG can be assigned to an inpatient stay (this is different than the outpatient prospective payment system (OPPS) where more than one APC can be assigned to an outpatient encounter). MS-DRG assignment begins after the patient is discharged from the hospital, with the assignment of diagnoses and procedure codes. Diagnoses and procedures are assigned ICD-10-CM (diagnoses) and ICD-10-PCS (procedures) codes, and they are sequenced according to CMS official coding guidelines. Codes for comorbidities (coexisting conditions) and complications (conditions that develop during inpatient admission) are also assigned. Medical coders also indicate whether the diagnosis/condition was present on admission by assigning a POA indicator.

Each hospital discharge is first categorized into one of 25 major diagnostic categories (MDCs). Theprincipal diagnosis determines the MDC assignment (so proper assignment and sequencing of codes is critical). Within most MDCs, cases are divided into surgical MS-DRGs and medical MS-DRGs. Some surgical and medical MS-DRGs are further differentiated on the basis of the presence or absence of complications or comorbidities. The appropriate MS-DRG is assigned to each discharge by computer software, called an MS-DRG grouper, that assigns the appropriate MS-DRG based on information entered, including ICD-10-CM and ICD-10-PCS codes.  

Each MS-DRG is assigned a predetermined relative payment weight that is based on the average resources used to treat Medicare patients in that DRG. A weight of 1.000 is average; meaning a relative payment weight higher than 1.000 means more resources are required to treat the patient and the payment is correspondingly higher. MS- DRG reimbursement is assigned using the DRG relative payment weight, a hospital base payment rate (a hospital specific per-encounter rate that is based on historic claims data), and any adjustments for disproportionate share hospital (DSH) status (facilities who treat a high percentage of low income patients), indirect medical education (IME) adjustment (facilities with approved graduate medical education program) and/or add-ons (for outliers and new medical service/technology).

Assignment: Administration wants to know the estimated MDS-DRG payment for several MS-DRGs. The grouper on your system has crashed. Administration needs this information immediately, so you need to calculate the MS-DRG payments manually. The add-on percentage for your facility is 1.03%. The hospital’s base rate is $6,321.67. The MS-DRGs that administration is concerned about are shown below in Table #1. The MS-DRG relative weights are shown in Table #2. Use Table #2 to obtain the MS-DRG relative weights, enter them into table #1, and calculate the estimated payments. The MS- DRG formula is Payment = MS-DRG Relative Weight x Hospital’s Base Rate x Add-on percentage. The first one is done for you.

Table #1

Table #2

MS-DRG 190 Estimated Payment Calculation:

Payment = MS-DRG Relative Weight x Hospital’s Base Rate x Add-on percentage

                = 1.1924 x $6321.67 x 1.03 = $7,764.09808724 = $7,764.10

#3 – Case Mix Index Assignment

The MS-DRG system creates a hospital’s case-mix index (types or categories of patients treated by the hospital) cased on the relative weights of the MS-DRG. The case-mix index can be figured by multiplying the relative weight of each MS-DRG by the number of discharges within that MS-DRG. This provides the total weight for each MS-DRG. The sum of all total weights divided by the sum of total patient discharges equals the case-mix index.

Calculate the case-mix index for General Hospital:

Why is case mix index (CMI) important? The case-mix index (CMI) can be used to help administration make financial decisions and also to adjust the average cost per patient (or day) for a given hospital relative to the adjusted average cost for other hospitals by dividing the average cost per patient (or day) by the hospital’s calculated CMI. The adjusted average cost per patient would reflect the charges reported for the types of cases treated in that year. For example, if hospital A has an average cost per patient of $1,000 and a CMI of 0.80 for a given year, their adjusted cost per patient is $1,000/0.80 = $1,250. Likewise, if Hospital B has an average cost per patient of $1,500 and a CMI of 1.25, their adjusted cost per patient is $1,500/1.25 = $1,200.

Therefore, if a hospital has a CMI greater than 1.00, their adjusted cost per patient or day will be lowered and conversely if a hospital has a CMI less than 1.00, their adjusted cost will be higher. Ideally, a hospital likes their CMI to be as high as possible.

Riyadh Electricity Company manufactures chandeliers . Following is information for next year’s operations, based on an estimated volume of 20,000 units: 4 marks

Expected revenues                                    $1,000,000

Unit costs:

Direct materials                                         $ 6.25

Direct labor                                                  15.75

Variable overhead                                          5.50

Fixed manufacturing overhead                      2.50

Total                                                     $30.00

Other fixed costs:

Administration, marketing, etc.             $225,000

Income tax rate                                                    30%

a.   What is the breakeven point for next year?

b.   What is next year’s projected after-tax income?

c.   Suppose the managers set a target after-tax income of $100,000. Estimate the number of units that must be sold.

DiveIn, Inc. manufactures two products, Goggles and Snorkels. Goggles are the more complex of the two products, requiring more direct labor time and more machine time per unit than Snorkels. Manufacturing overhead is currently assigned to the products on the basis of direct labor hours. The company has gathered some activity information and is interested in the differences between its present costing method and activity-based costing. All overheard costs should be allocated to the products. The overhead cost pools and activity drivers are as follows: Activity Pool Overhead Costs Total Driver Usage Setup $256,000 3,200 setups Materials Purchasing 110,000 2,750 purchase orders Machining/Fabricating 136,000 27,200 machine hours Total Overheard Costs $502,000 Other product information is as follows: Snorkels Goggles Number of units produced 40,000 10,000 Direct materials cost $ 15.00 per unit $ 30.00 per unit Direct labor cost $ 5.25 per unit $ 14.00 per unit Direct labor hours 30,000 20,000 Setups 400 2,800 Purchase orders 2,070 680 Machine hours 8,000 19,200 Required a. Using the traditional method of allocating overhead based on direct labor hours, compute the unit product cost of Goggles and Snorkels: i. Determine the overhead rate per direct labor hour. ii. Allocate overhead to each product based on the direct labor hours used by each. iii. Divide the total overhead allocated to each product by the number of products produced to obtain the overhead cost per unit. iv. Add the overhead cost per unit to the direct materials and direct labor costs per unit to obtain the unit product cost. b. Using an activity-based costing approach, compute the unit product cost of Goggles and Snorkels: i. Determine the three activity rates. ii. Allocate overhead to each product based on the activity drivers used by each. Total the three activity allocations to arrive at the total overhead allocated to each product. iii. Divide the total overhead allocated to each product by the number of products produced to obtain the overhead cost per unit. iv. Add the overhead cost per unit to the direct materials and direct labor costs per unit to obtain the unit product cost. c. Why do your answers to a(iv) and b(iv) differ? Be specific

Stewart purchased and placed in service a 5 year asset on November 23, 2018. It cost $100,000. He sold the asset on February 19, 2019. Determine his depreciation deduction for 2019  

The following information relates to the Cisco Corporation for the years ended December 31.

Cisco Corporation

Comparative Balance Sheets

December 31

Additional information:

1.   New equipment costing $141,000 were purchased for cash during the year.

2.   Investments were sold at cost.

3.   Old equipment costing $36,000 were sold for $15,000. The equipment had a book value of $10,000 at the time of the sale..

4.    A cash dividend of $38,000 was declared and paid during the year

Instructions: