During Heaton Company’s first two years of operations, the company reported absorption costing net operating income as follows:

  

	Year 1		Year 2
Sales (@ $63 per unit)	$	1,008,000	$	1,638,000
Cost of goods sold (@ $32 per unit)		512,000		832,000
Gross margin		496,000		806,000
Selling and administrative expenses*		323,200		353,200
Net operating income	$	172,800	$	452,800

   

* $3 per unit variable; $275,200 fixed each year.

  

The company’s $32 unit product cost is computed as follows:

  

Direct materials	$	5
Direct labor		10
Variable manufacturing overhead		2
Fixed manufacturing overhead ($315,000 ÷ 21,000 units)		15
Absorption costing unit product cost	$	32

Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings.

  

Production and cost data for the two years are:

  

	Year 1	Year 2
Units produced	21,000	21,000
Units sold	16,000	26,000

  

Required:

1.

Prepare a variable costing contribution format income statement for each year. Heaton Company Variable Costing Income Statement Year 1 Year 2 Variable expenses: Total variable expenses Fixed expenses: Total fixed expenses Net operating income (loss) 2. Reconcile the absorption costing and the variable costing net operating income figures for each year. (Losses and deductions should be indicated with a minus sign. Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 1 Year 2 Variable costing net operating income (loss) Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing Absorption costing net operating income (loss)

Bob Jensen Inc. purchased a $750,000 machine to manufacture specialty taps for electrical equipment. Jensen expects to sell all it can manufacture in the next 10 years. To encourage capital investments, the government has exempted taxes on profits from new investments. This legislation is to be in effect for the foreseeable future. The machine is expected to have a 10-year useful life with no salvage value. Jensen uses straight-line depreciation. The net cash inflow is expected to be $173,000 each year for 10 years. Jensen uses a 12% discount rate in evaluating capital investments. Assume, for simplicity, that MACRS depreciation rules do not apply. Required: Using Excel (including built-in functions for NPV, IRR, and MIRR), compute the following for the above-referenced investment: 1. The payback period, under the assumption that cash inflows occur evenly throughout the year. (Do not round intermediate calculations. Round your final answer to 1 decimal place.) 2. The accounting (book) rate of return based on (a) initial investment, and (b) average investment. (Round your final answers to 1 decimal place.) 3. The net present value (NPV) of the proposed investment under the assumption that cash inflows occur at year-end. (Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.) 4. The present value payback period, in years, of the proposed investment under the assumption that cash inflows occur evenly throughout the year. (Note: because of this assumption, the present value calculations will be approximate, not exact.) To calculate present value amounts, use the appropriate factors from Appendix C, Table 1. (Do not round intermediate calculations. Round your final answer to 1 decimal place.) 5. The internal rate of return (IRR). (Do not round intermediate calculations. Round your final answer to 1 decimal place.) 6. The modified internal rate of return (MIRR). (Do not round intermediate calculations. Round your final answer to 1 decimal place.) (In conjunction with this requirement, you might want to consult either of the following two references: MIRR Function and/or IRR in Excel.)

Schedule of Cash Collections of Accounts Receivable

Pet Place Supplies Inc., a pet wholesale supplier, was organized on May 1. Projected sales for each of the first three months of operations are as follows:

May	$340,000
June	470,000
July	640,000

All sales are on account. Of sales on account, 59% are expected to be collected in the month of the sale, 36% in the month following the sale, and the remainder in the second month following the sale.

Prepare a schedule indicating cash collections from sales for May, June, and July.

Pet Place Supplies Inc.
Schedule of Cash Collections from Sales
For the Three Months Ending July 31
	May	June	July
May sales on account:
Collected in May	$
Collected in June		$
Collected in July			$
June sales on account:
Collected in June
Collected in July
July sales on account:
Collected in July
Total cash collected	$	$	$

Wells Technical Institute (WTI), a school owned by Tristana Wells, provides training to individuals who pay tuition directly to the school. WTI also offers training to groups in off-site locations. WTI initially records prepaid expenses and unearned revenues in balance sheet accounts. Its unadjusted trial balance as of December 31 follows along with descriptions of items a through h that require adjusting entries on December 31.

Additional Information Items

1. An analysis of WTI's insurance policies shows that $3,335 of coverage has expired.
2. An inventory count shows that teaching supplies costing $2,891 are available at year-end.
3. Annual depreciation on the equipment is $13,342.
4. Annual depreciation on the professional library is $6,671.
5. On September 1, WTI agreed to do five courses for a client for $2,600 each. Two courses will start immediately and finish before the end of the year. Three courses will not begin until next year. The client paid $13,000 cash in advance for all five courses on September 1, and WTI credited Unearned Training Fees.
6. On October 15, WTI agreed to teach a four-month class (beginning immediately) for an executive with payment due at the end of the class. At December 31, $9,903 of the tuition has been earned by WTI.
7. WTI's two employees are paid weekly. As of the end of the year, two days' salaries have accrued at the rate of $100 per day for each employee.
8. The balance in the Prepaid Rent account represents rent for December.
   

WELLS TECHNICAL INSTITUTE Unadjusted Trial Balance December 31
	Debit			Credit
Cash	$	27,094
Accounts receivable		0
Teaching supplies		10,420
Prepaid insurance		15,632
Prepaid rent		2,085
Professional library		31,262
Accumulated depreciation—Professional library				$	9,380
Equipment		105,000
Accumulated depreciation—Equipment					16,675
Accounts payable					25,000
Salaries payable					0
Unearned training fees					13,000
Common stock					33,318
Retained earnings					76,000
Dividends		41,684
Tuition fees earned					106,293
Training fees earned					39,599
Depreciation expense—Professional library		0
Depreciation expense—Equipment		0
Salaries expense		50,022
Insurance expense		0
Rent expense		22,935
Teaching supplies expense		0
Advertising expense		7,295
Utilities expense		5,836
Totals	$	319,265		$	319,265

2-a. Post the balance from the unadjusted trial balance and the adjusting entries in to the T-accounts.
2-b. Prepare an adjusted trial balance.

Using the stockholder-bondholder conflict, explain why stockholders get an excess return when they switch to higher risk, higher return projects. In what sense is the return they get excess?

Question 1

If accounts receivable increased from $12,000 to $15,000 during the year and if sales amounted to $100,000 for the year, cash receipts from customers amounted to $103,000.

A. True

B. False                          

Question 2

When net income is used as a starting point in measuring cash flows from operating activities, there is no need to add depreciation expense to net income.

A. True

B. False

Question 3

What is the acid-test ratio for the following data? Cash - $34,000; marketable securities - $16,000; accounts and notes receivable, net - $46,000; merchandise inventory - $61,000; prepaid expenses - $3,000; accounts and notes payable, short term - $64,000; accrued liabilities - $16,000.

A. 1:2

B. 2:1

C. 1.2:1

D. 3:1

E. 4:1

Question 4

Express cost of goods sold as a common-size percentage using the following data. Sales - $45,000; cost of goods sold - $29,340; gross profit from sales - $15,660; operating expenses - $10,800; net income - $4,860.

A. 66 percent

B. 100 percent

C. 65.2 percent

D. 6.03 percent

Question 5

A stock split would be reported in a separate schedule.

A. True

B. False

Question 6

A company must publish a statement of cash flows for each period for which it publishes an income statement.

A. True

B. False

Question 7

Cash received from the issuance of long-term debt is a financing activity.

A. True

B. False

Question 8

When a statement of cash flows is prepared, dividends paid are reported as an investing activity.

A. True

B. False

Question 9

Collections of loans are a financing activity.

A. True

B. False

Question 10

Capital stock issued as a stock dividend is reported in a statement of cash flows.

A. True

B. False

Convertible Preferred Stock, Convertible Bonds, and EPS Francis Company has 31,200 shares of common stock outstanding at the beginning of 2016. Francis issued 3,900 additional shares on May 1 and 2,600 additional shares on September 30. It also has two convertible securities outstanding at the end of 2016. These are: Convertible preferred stock: 3,250 shares of 9.0%, $50 par, preferred stock were issued on January 2, 2013, for $60 per share. Each share of preferred stock is convertible into 3 shares of common stock. Current dividends have been declared and paid. To date, no preferred stock has been converted. Convertible bonds: Bonds with a face value of $325000 and an interest rate of 5.0% were issued at par in 2015. Each $1000 bond is convertible into 25 shares of common stock. To date, no bonds have been converted. Francis earned net income of $79000 during 2016. The income tax rate is 30%. Required: 1. Compute the number of shares of common stock that Francis should use in calculating basic earnings per share for 2016. Weighted average shares outstanding: shares 2. Calculate basic earnings per share for 2016. If required, round your answer to two decimal places. Basic earnings per share: $ 3. Calculate diluted earnings per share for 2016 and the incremental EPS of the preferred stock and convertible bonds. If required, round your answers to two decimal places. Diluted earnings per share: $ Incremental earnings per share Bonds: $ Preferred: $ 4a. Assume the same facts as above except that net income included a loss from discontinued operations of $12000 net of income taxes. Compute basic EPS. You do not have to calculate diluted EPS for this case. If required, round your answer to two decimal places. Basic earning per share: $ 4b. Show how the basic EPS you calculated should be reported to shareholders. You do not have to calculate diluted EPS. Francis Company EPS Computations EPS Based on:

The difference between actual revenues and expenses and the flexible budget is known as​ the:

A. flexible budget variance

B. master budget variance

C. static budget variance

D. volume variance

Identify which responsibility center would best describe the​ following:

The production line of American​ Apparel, where clothing is manufactured.

A. Revenue Center

B. Cost Center

C. Profit Center

D. Investment Center

The subscription sales department of the New York Times.

A. Revenue Center

B. Cost Center

C. Profit Center

D. Investment Center

The corporate division of​ Disney, Inc. responsible for​ revenues, costs, and managing its​ division's assets.

A. Revenue Center

B. Cost Center

C. Profit Center

D. Investment Center

A Target​ store, which is part of the national store​ brand, and reports its own revenues and costs.

A. Revenue Center

B. Cost Center

C. Profit Center

D. Investment Center

McCormick & Company is considering a project that requires an initial investment of $24millionto build a new plant and purchase equipment. The investment will be depreciated as a modified acceleratedcost recovery system(MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $4.3million.The company will produce bulk units at a cost of $130 each and will sell them for $420 each. There are annual fixed costs of $500,000. Unit sales are expected to be $150,000each year for the next sixyears, at which time the project will be abandoned. At that time, the plant and equipment is expected to be worth $8million(before tax) and the land is expected to be worth $5.4million(after tax).  To supplement the production process, the company will need to purchase $1millionworth of inventory. That inventory will be depleted during the final year of the project. The company has $100millionof debt outstanding with a yieldtomaturity of 8percent, and has $150millionof equity outstanding with a beta of 0.9. The expected market return is 13percent,and the risk-free rate is 5percent.The company's marginal tax rate is 40percent.

6. Create an after-tax cash flow timeline.

7.What are the total expected cash flows at the end of year six?The $4.3millionis an opportunity cost and must be included at date zero as a cash outflow.If the project is accepted, however, the land can be sold in six years for $5.4million.

8.Find the NPV using the after-tax WACC as the discount rate.

9.Find the IRR.

10.Should the project be accepted? Discuss whether NPV or IRR creates the best decision rule.  

The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:

Year 1
July 1.	Issued $2,470,000 of five-year, 6% callable bonds dated July 1, Year 1, at a market (effective) rate of 8%, receiving cash of $2,269,661. Interest is payable semiannually on December 31 and June 30.
Dec. 31.	Paid the semiannual interest on the bonds. The bond discount amortization of $20,034 is combined with the semiannual interest payment.
Dec. 31.	Closed the interest expense account.
Year 2
June 30.	Paid the semiannual interest on the bonds. The bond discount amortization of $20,034 is combined with the semiannual interest payment.
Dec. 31.	Paid the semiannual interest on the bonds. The bond discount amortization of $20,034 is combined with the semiannual interest payment.
Dec. 31.	Closed the interest expense account.
Year 3
June 30.	Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $120,203 after payment of interest and amortization of discount have been recorded. (Record the redemption only.)

1. Journalize the entries to record the foregoing transactions. If an amount box does not require an entry, leave it blank or enter "0". When required, round your answers to the nearest dollar.

Date	Account	Debit	Credit
Year 1
July 1	Cash
	Discount on bonds payable
	Bonds payable
Dec. 31-Bond	Interest expense
	Discount on bonds payable
	Cash
Dec. 31-Closing	Income summary
	Interest expense
Year 2
June 30	Interest expense
	Discount on bonds payable
	Cash
Dec. 31-Bond	Interest expense
	Discount on bonds payable
	Cash
Dec. 31-Closing	Income summary
	Interest expense
Year 3
June 30	Bonds payable
	Loss on redemption of bonds
	Discount on bonds payable
	Cash

2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.

a. Year 1   $

b. Year 2   $

3. Determine the carrying amount of the bonds as of December 31, Year 2.
$

DIFFERENT NUMBERS ARE INVOLVED, NOT THE SAME AS THE SIMILAR PROJECT Q/A TO THIS.

**VERY IMPORTANT**

1. JOURNALIZE and make a T-Chart Account
2. MAKE an Adjusting Entries Statement
3. MAKE an Income Statement (Multi-step income statement)
4. MAKE a Balance Sheet (current asset and non-current assets)
5. MAKE a Retained earnings statement
6. MAKE a Closing Entries statement
7. SHOW ALL FORMULAS FOR EVERYTHING CALCULATED

**VERY IMPORTANT**

Accounting Cycle Project

Transaction Practice Set – SUNG Co.

                                          ACC5100 – Winter 2019 – Prof. Chung                                         

You have been hired as an accountant for SUNG Co., a corporation performing diverse consulting services in Detroit, Michigan. SUNG Co. prepares financial statements on monthly bases.

Project Scope: You are to record the transactions for December, prepare the monthly adjustments, and prepare the financial statements using the Excel workbook provided. Then you will close the fiscal year and prepare the books for next year.

Directions: The assignment encompasses two files: Directions and Transactions (this Word document) and Forms (a separate Excel workbook). Your solution should be worked in Excel and the completed Excel workbook submitted for grading.

You should use Excel formula where appropriate and cell references to carry forward values and numbers between worksheets within the workbook. Simply typing values in Excel will result in a reduced score, even if the correct solution is provided. You should use formula wherever possible.

1. Analyze the narrative to prepare and record the transactions for December to the General Journal.
2. Post the journal entries to ledger accounts using T-accounts (Don’t forget the opening balances from the information given on the post-closing trial balance on Nov. 30th.)
3. Prepare Income Statement and the Retained Earnings Statement for the month ended December 31, 2018 and Balance Sheet as of December 31, 2018 in good forms. Use the multi-step format for the Income Statement.
4. Close the temporary accounts, posting any net income or loss to retained earnings.

Due Date: Apr. 24^th, 2019.

Transactions in December 2018:

Dec.	1	The equipment was completely destroyed by the regional earth quake. “Loss by earthquake” was recognized.
	1	Lent cash to another company and received a 2 year, $30,000 zero-interest-bearing note. The market rate of interest for a note of similar risk is 9 percent.
	1	Purchased new equipment that costs $12,000 and issued 1,200 shares of common stock (no-par stock) to the equipment seller.
	3	Cash payment on accounts payable amounted to $6,000.
	4	Sold land for $13,000 cash.
	10	Collected $16,000 as payment for amounts previously billed (suppose the payment was made within the discount period).
	13	One of the customers went bankrupt. SUNG Co. wrote off $1,500 account receivable.
	15	Paid monthly salaries of $20,000 to employees
	16	Issued 1,000 shares of preferred stock at $15 per share
	17	Purchased 500 shares of ABC corporation’s common stock at $20 (per share) and classify the securities as available-for-sales securities
	20	Found that the company incorrectly overstated its November account receivable and sales revenue by $2,000 and made a journal entry to correct the error.
	29	Performed services for a customer for $40,000 cash
	30	Performed $30,000 services on account with the following terms: 2/15, n/30. SUNG Co. records credit sales using the net method
	31	Dividends of $5,000 were declared and paid. $ 1,500 is paid to preferred stockholders and the rest is paid to the common stock holders.
	31	ABC corporation declared $ 5 dividend per share (to common stock holders). It will be paid in 2018.

* Additional information

1. Ignore tax effect.
2. Salaries expenses incurred but not paid prior to Dec. 31^st totaled $10,500.
3. The company received the bill for utility services (electricity) that the firm used during December in the amount of $6,000. The company will pay the bill in Jan. 2018.
4. $3,000 of supplies remained at the end of December.
5. The company use the “Allowance” method for possible accounts receivable write-offs in the future and estimated that 5% of the outstanding account receivable will not be collected.
6. The equipment purchased on Dec. 1^st depreciates $200 per month.
7. The common stock price of ABC Corporation on December 31st is still $ 20 per share.

SUNG Co.
Post-closing Trial Balance
November 30th, 2018
ACCOUNT		DEBIT	CREDIT
Cash		$42,500
Accounts Receivable		20,000
Allowance for doubtful account			1,000
Supplies		9,000
Equipment		10,000
Accumulated Depreciation			$5,000
Land		10,500
Accounts Payable			8,000
Salaries Payable			10,000
Common Stock*			50,000
Retained Earnings			18,000
		$92,000	$92,000
* 50,000 shares authorized, 20,000 shares issued and outstanding

Question 2 Motswatswa (Pty) Ltd manufactures a special make of lounge suite covers and has compiled the following data in order to put together their first quarter operating budget for 2020: January February March April Sales (units) 35,000 31,000 38,000 29,000 Additional information: Motswatswa sells each cover for R95. Company policy is to have 30% of next month’s sales (in units) in ending finished goods inventory. This policy was met in December. Company policy is to have 40% of next month’s production needs in ending raw materials inventory. The production needs for April is 95,500. This policy was met in December. It takes three meters of material to produce each cover and the cost is R2.75/meters. Required: A. Prepare a sales budget for the January, February and March and for the first quarter in total. (4) B. Prepare a production budget for January, February and March and for the first quarter in total. (8) C. Prepare a direct material purchases budget for January, February and March and for the first quarter in total. (12)

What’s the difference between default and bankruptcy?

Part 1:
Consider the following perpetual system merchandising transactions of Belton Company. Use a separate account for each receivable and payable; for example, record the sale on June 1 in Accounts Receivable—Avery & Wiest.

June 1 Sold merchandise to Avery & Wiest for $9,400; terms 2/5, n/15, FOB destination (cost of sales $6,550).
        2 Purchased $4,800 of merchandise from Angolac Suppliers; terms 1/10, n/20, FOB shipping point.
        4 Purchased merchandise inventory from Bastille Sales for $11,200; terms 1/15, n/45, FOB Bastille Sales.
        5 Sold merchandise to Gelgar for $10,800; terms 2/5, n/15, FOB destination (cost of sales $7,600).
        6 Collected the amount owing from Avery & Wiest regarding the June 1 sale.
     12 Paid Angolac Suppliers for the June 2 purchase.
      20 Collected the amount owing from Gelgar regarding the June 5 sale.
      30 Paid Bastille Sales for the June 4 purchase.

Prepare General Journal entries to record the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

example

Journal entry worksheet

• Record the sales; terms 2/5, n/15, FOB destination.

Note: Enter debits before credits.

	Date General Journal Debit Credit June 01 Cost of goods sold 6,550 Merchandise inventory 6,550

Calculate net sales

calculate costs of goods

calculate gross profit from sales

What happens if a company sells bonds when the current market rate is: (a) equal to the company’s bond rate? (b) less than the company’s bond rate? (c) more than the company’s bond rate?