Why is it so difficult to change the culture of an organization? Is it worth the effort?  Provide an example of a workplace culture you've witnessed a change.

1. You are evaluating the purchase of either of two machines used in your brewery. Machine A will last two years, costs $8,000 initially, and then $1,250 per year in maintenance costs. Machine B costs $9,500 initially, has a life of three years, and requires $1,000 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. Your interest rate on current debt and the initial purchases is 9 percent and the tax rate is zero. Explain your processes and assumptions

Wal Mart Stores Consolidated Income Statement (amounts in millions)

Year 4             Year 5             Year 6             Year 7

Sales Revenues                                               $83,412           $94,749           $106,146

Cost of Goods Sold                                        $65,586           $74,564           $83,663

Accounts Receivables             $ 690              $     900           $      853          $      845         

Inventories                              $11,014           $14,064           $15,989           $ 15,897                     

Question # 6

Please calculate the accounts receivable and inventory ratios for years 5 thru 7.

Question # 7

Does any of the inventory scenarios and interpretations that we discussed at the end of session 4 apply here?

Question # 8

Why does Wal Mart have such a big difference between its account receivable turnover ratios and inventory ratios? Does it have anything to do with the line of business it is active?

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QUESTION: If the true cost concept is applied, what would be the allocation in the 21st year, after the mortgage had been paid off?

Big Bend Medical Center is a full-service, not-for-profit acute care hospital with 325 beds. The bulk of the hospital’s facilities are devoted to inpatient care and emergency services. However, a 100,000 square-foot section of the hospital complex is devoted to outpatient services. Currently, this space has two primary uses. About 80 percent of the space is used by the Outpatient Clinic, which handles all routine outpatient services offered by the hospital. The remaining 20 percent is used by the Dialysis Center. The Dialysis Center performs hemodialysis and peritoneal dialysis, which are alternative processes for removing wastes and excess water from the blood for patients with end-stage renal (kidney) disease. In hemodialysis, blood is pumped from the patient’s arm through a shunt into a dialysis machine, which uses a cleansing solution and an artificial membrane to perform the functions of a healthy kidney. Then, the cleansed blood is pumped back into the patient through a second shunt. In peritoneal dialysis, the cleansing solution is inserted directly into the abdominal cavity through a catheter. The body naturally cleanses the blood through the peritoneum—a thin membrane that lines the abdominal cavity. Typically, hemodialysis patients require three dialyses a week, with each treatment lasting about four hours. Patients who use peritoneal dialysis change their own cleansing solutions at home, usually about six times per day. This procedure can be done manually when active or automatically by machine when sleeping. However, the patient’s overall condition, as well as the positioning of the catheter, must be monitored regularly at the Dialysis Center. Big Bend’s cost accounting system, which was installed two years ago, allocates facilities costs (which at Big Bend essentially consist of building depreciation and interest on long-term debt) on the basis of square footage. Currently, the facilities cost allocation rate is $15 per square foot, so the facilities cost allocation is 20,000 × $15 = $300,000 for the Dialysis Center and 80,000 × $15 = $1,200,000 for the Outpatient Clinic. All other overhead costs, such as administration, finance, maintenance, and housekeeping, are lumped together and called “general overhead.” These costs are allocated on the basis of 10 percent of the revenues of each patient service department. The current allocation of general overhead is $270,000 for the Dialysis Center and $1,600,000 for the Outpatient Clinic, which results in total overhead allocations of $570,000 for the Dialysis Center and $2,800,000 for the Outpatient Clinic. Recent growth in volume of the Outpatient Clinic has created a need for 25 percent more space than currently assigned. Because the Outpatient Clinic is much larger than the Dialysis Center, and because its patients need frequent access to other departments within the hospital, the decision was made to keep the Outpatient Clinic in its current location and to move the Dialysis Center to another location to free up space. Such a move would boost the Outpatient Clinic space to 100,000 square feet, a 25 percent increase. After attempting to find new space for the Dialysis Center within the hospital complex, it was soon determined that a new 20,000 square foot building must be built. This building will be situated three blocks away from the hospital complex, in a location that is much more convenient for dialysis patients (and Center employees) because of ease of parking. The 20,000 square feet of space, which can be more efficiently utilized than the old space, allows for a substantial increase in patient volume, although it is unclear whether the move will result in additional dialysis patients. Construction cost of the new building is estimated at $120 per squarae foot, for a total cost of $2,4000,000. Additionally, the purchase of land, furniture and other fittings, along with relocation of current equipment, files and other items, would cost $1,600,000, for a total cost of $4,000,000. The $4,000,000 cost would be financed by a 7.75%, 20-year, first-mortgage loan. With both the principal amount (which can be considered depreciation) and interest are amortized over 20 years, the end result is an annual cost of financing of $4,000,000. Thus, it is possible to estimate the actual annual facilities costs for the new Dialysis Center, something that is not possible for units located within the hospital complex. Table 1 contains the projected profit and loss (P&L) statement for the Dialysis Center before adjusting for the move. The hospital’s department heads receive annual bonuses on the basis of each department’s contribution to the bottom line (profit). In the past, only direct costs were considered, but the hospital’s chief executive officer (CEO) has decided that bonuses would now be based on full (total) costs. The new approach to awarding bonuses, coupled with the potential for increases in indirect cost allocation, is of great concern to John Van Pelt, the director of the Dialysis Center. Under the current allocation of indirect costs, John would have a reasonable chance at an end-of-year bonus, as the forecast puts the Dialysis Center in the black. However, any increase in the indirect cost allocation would likely put him out of the money. At the next department heads’ meeting, John expressed his concern about the impact of any allocation changes on the Dialysis Center’s profitability, so the hospital’s CEO asked the chief financial officer (CFO), Rick Simmons, to look into the matter. In essence, the CEO said that the final allocation is up to Rick but that any allocation changes must be made within outpatient services. In other words, any change in indirect cost allocation to the Dialysis Center must be offset by an equal, but opposite, change in the allocation to the Outpatient Clinic. To get started, Rick created Table 2 (see Excel spreadsheet). In creating the table, Rick assumed that the new Dialysis Center would have the same number of stations as the old one, would serve the same number of patients, and would have the same reimbursement rates. Also, direct operating expenses would differ only slightly from the current situation because the same personnel and equipment would be used. Thus, for all practical purposes, the revenues and direct costs of the Dialysis Center would be unaffected by the move. The data in Table 2 for the expanded Outpatient Clinic are based on the assumption that the expansion would allow volume to increase by 25 percent and that both revenues and direct costs would increase by a like amount. Furthermore, to keep the analysis manageable, the assumption was made that the overall hospital allocation rates for both facilities costs and general overhead would not materially change because of the expansion. Rick knew that his “trial balloon” allocation, which is shown in Table 2 in the columns labeled “Initial Allocation,” would create some controversy. In the past, facilities costs were aggregated; so all departments were charged a cost based on the average embedded (historical) cost regardless of the actual age (or value) of the space occupied. Thus, a basement room with no windows was allocated the same facilities costs (per square foot) as was the fifth floor executive suite. Because many department heads thought this approach to be unfair, Rick wanted to begin allocating facilities overhead on a true cost basis. Thus, in his initial allocation, Rick used actual facilities costs ($400,000 per year) as the basis for the allocation to the Dialysis Center. Needless to say, John’s response to the initial allocation was less than enthusiastic. Specifically, he was concerned over several issues. **First, is it fair for the Dialysis center to suffer (in terms of profitability) because it will be charged actual facilities costs for its new location? After all, the Outpatient Clinic forced the move, which is being charged for facilities at the lower average allocation rate. Under the concept of charging for actual facilities costs department heads might be better off by resisting proposed moves to new (and potentially more efficient) facilities because such moves would result in increased facilities allocations. **Also, even if the actual cost concept were applied to the Dialysis Center, is the $400,000 annual allocation amount correct? After all, the building has a useful life that is probably significantly longer than 20 years – the life of the loan used to determine the allocation amount. If the true cost concept is applied, what would be the allocation in the 21st year, after the mortgage had been paid off? Finally, it appears that the revenue the Dialysis Center “receives” from patient use of the pharmacy. That is, the Dialysis Center books $800,000 in annual revenue but then is charged 800,000 for the drugs used. **Should this “revenue be counted when general overhead allocations are made? To make this point, John discovered that the pharmacy supplies used for dialysis actually cost the pharmacy $400,000, so the pharmacy makes a profit of $400,000 on drugs that are actually “sold” by the Dialysis Center. Before Rick was able to respond to John’s concerns, he suddenly left the facility to be the CFO of a competing investor-owned hospital. The task of completing the allocation study was given to you. You remember that to be of most benefit to the organization, cost allocations should 1- be perceived as fair by the parties involved and 2-Promote overall cost savings within the organization. However, you also realize that, in practice, cost allocation is very complex and somewhat arbitrary. Some department heads argue that the best approach to overhead allocations is the “Marxist approach.” By which allocations are based on each patient service department’s ability to cover overhead costs. Considering all the relevant issues, you must develop and justify a new indirect cost allocation scheme for outpatient services. **Summarize the results in the “Alternative Allocation” columns in table 2. Complete the blank lines (show equation) and be prepared to justify your recommendations at the next department heads’ meeting.

Comprehensive Set of Transactions. The City of Lynnwood was recently incorporated and had the following transactions for the fiscal year ended December 31, 2017.

·         The city council adopted a General Fund budget for the fiscal year. Revenues were estimated at $3,000,000 and appropriations were $2,990,000.

·         Property taxes in the amount of $2,000,000 were levied. It is estimated that $8,000 of the taxes levied will be uncollectible.

·         A General Fund transfer of $30,000 in cash and $300,000 in equipment (with accumulated depreciation of $65,000) was made to establish a central duplicating internal service fund.

·         A citizen of Lynnwood donated marketable securities with a fair value of $900,000. The donated resources are to be maintained in perpetuity with the city using the revenue generated by the donation to finance an after school program for children, which is sponsored by the parks and recreation function. Revenue earned and received as of December 31, 2017, was $45,000.

·         The city's utility fund billed the city's General Fund $125,000 for water and sewage services. As of December 31, the General Fund had paid $124,000 of the amount billed.

·         The central duplicating fund purchased $4,500 in supplies.

·         Cash collections recorded by the general government function during the year were as follows:

·         During the year the internal service fund billed the city's general government function $15,700 for duplicating services and it billed the city's utility fund $8,100 for services.

·         The city council decided to build a city hall at an estimated cost of $5,000,000. To finance the construction, 6 percent bonds were sold at the face value of $5,000,000. A contract for $4,500,000 has been signed for the project; how- ever no expenditures have been incurred as of December 31, 2017.

·         The general government function issued a purchase order for $32,000 for computer equipment. When the equipment was received, a voucher for $31,900 was approved for payment and payment was made.

Using this information, prepare all journal entries to properly record each transaction for the fiscal year ended December 31, 2017. Use the following funds and government-wide activities, as necessary:

Each journal entry should be numbered to correspond with each transaction. Do not prepare closing entries.

Your answer sheet should be organized as follows:

Problem 2-33 (LO 2-4, 2-5, 2-6a, 2-6b, 2-6c, 2-7, 2-8) On January 1, NewTune Company exchanges 17,949 shares of its common stock for all of the outstanding shares of On-the-Go, Inc. Each of NewTune’s shares has a $4 par value and a $50 fair value. The fair value of the stock exchanged in the acquisition was considered equal to On-the-Go’s fair value. NewTune also paid $23,500 in stock registration and issuance costs in connection with the merger. Several of On-the-Go’s accounts’ fair values differ from their book values on this date: Book Values Fair Values Receivables $ 35,250 $ 29,150 Trademarks 102,500 255,500 Record music catalog 80,000 267,500 In-process research and development 0 223,500 Notes payable (66,250 ) (56,900 ) Precombination book values for the two companies are as follows: NewTune On-the-Go Cash $ 74,000 $ 30,000 Receivables 128,000 35,250 Trademarks 411,000 102,500 Record music catalog 928,000 80,000 Equipment (net) 379,000 166,000 Totals $ 1,920,000 $ 413,750 Accounts payable $ (189,000 ) $ (51,500 ) Notes payable (465,000 ) (66,250 ) Common stock (400,000 ) (50,000 ) Additional paid-in capital (30,000 ) (30,000 ) Retained earnings (836,000 ) (216,000 ) Totals $ (1,920,000 ) $ (102,500 ) Assume that this combination is a statutory merger so that On-the-Go’s accounts will be transferred to the records of NewTune. On-the-Go will be dissolved and will no longer exist as a legal entity. Prepare a postcombination balance sheet for NewTune as of the acquisition date. Assume that no dissolution takes place in connection with this combination. Rather, both companies retain their separate legal identities. Prepare a worksheet to consolidate the two companies as of the combination date. Assume that this combination is a statutory merger so that On-the-Go’s accounts will be transferred to the records of NewTune. On-the-Go will be dissolved and will no longer exist as a legal entity. Prepare a postcombination balance sheet for NewTune as of the acquisition date. NEWTUNE COMPANY AND ON-THE-GO, INC. Post-Combination Balance Sheet January 1, 2018 Assets Liabilities and Stockholders' Equity Cash Accounts payable Receivables Notes payable Trademarks Common stock Record music catalog Additional paid-in capital Research and development asset Retained earnings Equipment Goodwill Total assets $0 Total liabilities and equities $0 Assume that no dissolution takes place in connection with this combination. Rather, both companies retain their separate legal identities. Prepare a worksheet to consolidate the two companies as of the combination date. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.) Show less NEWTUNE COMPANY AND ON-THE-GO, INC. Consolidation Worksheet January 1, 2018 Consolidation Entries Accounts Newtune Co On-the-Go, Inc. Debit Credit Consolidated Totals Cash Receivables Investment in On-the-Go Trademarks Record music catalog Research and development asset Equipment Goodwill Total assets $0 $0 $0 Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings Total liabilities and equities $0 $0 $0 $0 $0

Selected year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31, 2016, were inventory, $46,900; total assets, $229,400; common stock, $90,000; and retained earnings, $41,934.) CABOT CORPORATION Income Statement For Year Ended December 31, 2017 Sales $ 448,600 Cost of goods sold 298,450 Gross profit 150,150 Operating expenses 99,000 Interest expense 3,900 Income before taxes 47,250 Income taxes 19,034 Net income $ 28,216 CABOT CORPORATION Balance Sheet December 31, 2017 Assets Liabilities and Equity Cash $ 14,000 Accounts payable $ 16,500 Short-term investments 8,600 Accrued wages payable 4,400 Accounts receivable, net 32,000 Income taxes payable 3,200 Notes receivable (trade)* 5,500 Merchandise inventory 32,150 Long-term note payable, secured by mortgage on plant assets 64,400 Prepaid expenses 3,100 Common stock 90,000 Plant assets, net 153,300 Retained earnings 70,150 Total assets $ 248,650 Total liabilities and equity $ 248,650 * These are short-term notes receivable arising from customer (trade) sales. Required: Compute the following: (1) current ratio, (2) acid-test ratio, (3) days' sales uncollected, (4) inventory turnover, (5) days' sales in inventory, (6) debt-to-equity ratio, (7) times interest earned, (8) profit margin ratio, (9) total asset turnover, (10) return on total assets, and (11) return on common stockholders' equity. (Do not round intermediate calculations.)

1. Wages of $9,000 are earned by workers but not paid as of December 31.
2. Depreciation on the company’s equipment for the year is $10,840.
3. The Supplies account had a $490 debit balance at the beginning of the year. During the year, $6,096 of supplies are purchased. A physical count of supplies at December 31 shows $660 of supplies available.
4. The Prepaid Insurance account had a $5,000 balance at the beginning of the year. An analysis of insurance policies shows that $2,800 of unexpired insurance benefits remain at December 31.
5. The company has earned (but not recorded) $750 of interest revenue for the year ended December 31. The interest payment will be received 10 days after the year-end on January 10.
6. The company has a bank loan and has incurred (but not recorded) interest expense of $2,500 for the year ended December 31. The company will pay the interest five days after the year-end on January 5.

For each of the above separate cases, analyze each adjusting entry by showing its effects on the accounting equation—specifically, identify the accounts and amounts (including (+) increase or (−) decrease) for each transaction or event.

AND CAN YALL PUT EACH PROCESS ON HOW YOU FIND THE ANSWER? PLEASE IT WILL HELP ME A LOT TO UNDERSTAND THE PROCESS.

Required information

Problem 8-4A Preparing a bank reconciliation and recording adjustments LO P3

[The following information applies to the questions displayed below.]

The following information is available to reconcile Branch Company’s book balance of cash with its bank statement cash balance as of July 31, 2017.

1. On July 31, the company’s Cash account has a $25,646 debit balance, but its July bank statement shows a $27,664 cash balance.
2. Check No. 3031 for $1,400 and Check No. 3040 for $692 were outstanding on the June 30 bank reconciliation. Check No. 3040 is listed with the July canceled checks, but Check No. 3031 is not. Also, Check No. 3065 for $476 and Check No. 3069 for $2,168, both written in July, are not among the canceled checks on the July 31 statement.
3. In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that Check No. 3056 for July rent expense was correctly written and drawn for $1,250 but was erroneously entered in the accounting records as $1,240.
4. The July bank statement shows the bank collected $9,000 cash on a noninterest-bearing note for Branch, deducted a $45 collection expense, and credited the remainder to its account. Branch had not recorded this event before receiving the statement.
5. The bank statement shows an $805 charge for a $795 NSF check plus a $10 NSF charge. The check had been received from a customer, Evan Shaw. Branch has not yet recorded this check as NSF.
6. The July statement shows a $14 bank service charge. It has not yet been recorded in miscellaneous expenses because no previous notification had been received.
7. Branch’s July 31 daily cash receipts of $10,152 were placed in the bank’s night depository on that date but do not appear on the July 31 bank statement.

Problem 8-4A Part 2

2. Prepare the journal entries necessary to bring the company’s book balance of cash into conformity with the reconciled cash balance as of July 31, 2017. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. On July 31, the company’s Cash account has a $25,646 debit balance, but its July bank statement shows a $27,664 cash balance.
2. Check No. 3031 for $1,400 and Check No. 3040 for $692 were outstanding on the June 30 bank reconciliation. Check No. 3040 is listed with the July canceled checks, but Check No. 3031 is not. Also, Check No. 3065 for $476 and Check No. 3069 for $2,168, both written in July, are not among the canceled checks on the July 31 statement.
3. In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that Check No. 3056 for July rent expense was correctly written and drawn for $1,250 but was erroneously entered in the accounting records as $1,240.
4. The July bank statement shows the bank collected $9,000 cash on a noninterest-bearing note for Branch, deducted a $45 collection expense, and credited the remainder to its account. Branch had not recorded this event before receiving the statement.
5. The bank statement shows an $805 charge for a $795 NSF check plus a $10 NSF charge. The check had been received from a customer, Evan Shaw. Branch has not yet recorded this check as NSF.
6. The July statement shows a $14 bank service charge. It has not yet been recorded in miscellaneous expenses because no previous notification had been received.
7. Branch’s July 31 daily cash receipts of $10,152 were placed in the bank’s night depository on that date but do not appear on the July 31 bank statement.

9.

The Diversified Portfolio Corporation provides investment advice to customers. A condensed income statement for the year ended December 31, 2018, appears below:

The following balance sheet information also is available:

In addition, the following transactions took place during the year:

Common stock was issued for $120,000 in cash.

Long-term investments were sold for $60,000 in cash. The original cost of the investments also was $60,000.

$90,000 in cash dividends was paid to shareholders.

The company has no outstanding debt, other than those payables listed above.

Operating expenses include $40,000 in depreciation expense.

Required:
1. Prepare a statement of cash flows for 2018 for the Diversified Portfolio Corporation. Use the direct method for reporting operating activities.

2. Prepare the cash flows from operating activities section of Diversified’s 2018 statement of cash flows using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Julio produces two types of calculator, standard and deluxe. The company is currently using a traditional costing system with machine hours as the cost driver but is considering a move to activity-based costing. In preparing for the possible switch, Julio has identified two cost pools: materials handling and setup. The collected data follow:

Total estimated overhead costs are $344,380, of which $157,500 is assigned to the material handling cost pool and $186,880 is assigned to the setup cost pool.

Required:
1. Calculate the overhead assigned to each product using the traditional cost system. (Round the overhead rate to four decimal places.)

2. Calculate the overhead assigned to each product using ABC.

You are a start up in the highly competitive smart phone market. Your introductory offering to the marketplace was well received and sales were more than very good. You have two options: reinvest the profits into new equipment or invest in R&D. Give the pros and cons for doing each option. Also, are there any creative financing options available for R&D that would allow you to do both?