Basic Facts: DEF is an equal general partnership engaged in medical practice. On January 1, 2007, D died, triggering the partnership’s buy/sell agreement. Just prior to his death, D’s outside basis was $130. According to the agreement, the partnership must pay D’s sole beneficiary, B, $500 in liquidation of her interest in the partnership. Neither the partnership agreement nor the buy/sell agreement mentions goodwill. There is no §754 election in place. On the date of death, DEF’s balance sheet (with FMVs) was as follows:

            Assets                                                                         Liabilities & Capital

                                    AB/Book         FMV                                        Liabilities        $150               

Cash                            $120                $120

Acc’ts Rec.                  0                      150

Installment Oblig.       150                  270

Equipment                  90                    300

Land                            30                    510

Goodwill                     0                      300

                                    $390                $1650

                                                                                                Capital Accounts

                                                                                                Tax/Bk                        FMV   

                                                                                    D          $80                  $500

                                                                                    E          80                    500

                                                                                    F          80                    500

                                                                                                $240                $1500

Assume that the equipment was purchased by the partnership for $400, and that the land is used in the partnership’s business.

Questions:

1. Before the distribution to B in liquidation of her interest in the partnership, what is her outside basis?
2. If there were a §754 election in place what would be the amount of the §743(b) adjustment, and among which assets (and in what amount) would it be allocated?
3. What are the income tax consequences to B of the $500 distribution?
4. What difference would it have made if the agreement explicitly allocated $100 to goodwill?
5. What difference would it have made if there were no buy/sell agreement and B (who is also a doctor) becomes a partner in D’s place?

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities. The following selected transactions relate to Amalgamated’s investment activities during the last quarter of 2018 and the first month of 2019. The only securities held by Amalgamated at October 1 were $40 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value and held in Amalgamated’s trading portfolio. The company’s fiscal year ends on December 31.

2018
Oct.		18		Purchased 2 million preferred shares of Millwork Ventures Company for $56 million.
		31		Received semiannual interest of $1.6 million from the Kansas Abstractors bonds.
Nov.		1		Purchased 10% bonds of Holistic Entertainment Enterprises at their $18 million face value, to be held until they mature in 2025. Semiannual interest is payable April 30 and October 31.
		1		Sold the Kansas Abstractors bonds for $36 million because rising interest rates are expected to cause their fair value to continue to fall. No unrealized gains and losses had been recorded on these bonds previously.
Dec.		1		Purchased 12% bonds of Household Plastics Corporation at their $50 million face value, to be held until they mature in 2028. Semiannual interest is payable May 31 and November 30.
		20		Purchased U. S. Treasury bonds for $5.8 million as trading securities, hoping to earn profits on short-term differences in prices.
		21		Purchased 4 million common shares of NXS Corporation for $48 million, planning to earn profits from dividends or gains if prevailing market conditions encourage sale.
		23		Sold the Treasury bonds for $6.0 million.
		29		Received cash dividends of $3 million from the Millwork Ventures Company preferred shares.
		31		Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Millwork Ventures Company preferred stock was $24.50 per share and $14.00 per share for the NXS Corporation common. The fair values of the bond investments were $59.7 million for Household Plastics Corporation and $16.9 million for Holistic Entertainment Enterprises.

2019
Jan.		7		Sold the NXS Corporation common shares for $46 million.

Required:
Prepare the appropriate journal entry for each transaction or event. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)

Case Study 2 Master Budgeting and Pro-Forma Financial Statements

You have just been assigned to a new manager who believes you have exceptional budgeting skills. Since you began your job last summer, you have been showing management your latest spreadsheets and how you use your new-found knowledge of Managerial Accounting to make sound business decisions. Your new manager is responsible for the nationwide distribution of designer handkerchief sets (HCS) and, through multiple franchise agreements, sales have grown very rapidly, and the timing is right for you to join her team and to show your skills. You have just been given responsibility for all planning and budgeting of the entire HCS division. Your first assignment is to prepare a master budget for the next three months, starting April 1, 2019. You accept this responsibility with enthusiasm and you are anxious to impress your new manager and the president of the company, who has a very high regard for you. To commence your new role, you have assembled the following pertinent information:

Note: The company desires a minimum ending cash balance each month on $10,000. The HCS’s are sold to retailers for $8 each and they are flying off the shelves. Recent forecasted sales in units are provided below:

January (actual)	20,000	June	60,000
February (actual)	24,000	July	40,000
March (actual)	28,000	August	36,000
April	35,000	September	32,000
May	45,000

The increased sales volume before and during June is due to Father’s Day with HCS being a favorite. Ending inventories are supposed to be equal to 90% of the next month’s sales in units. The cost of each HCS is $5.00.

Purchases are paid for in the following manner: 50% in the month of the purchase and the remaining 50% paid in the month following the purchase. All sales to the distributors are made on credit terms with no discount (for now), and payable within 15 days. The HCS division has determined that only 25% of a month’s sales are collected by the end of the month in which the sale occurred. An additional 50% is collected in the month following the sale, and the remaining 25% is collected in the second month following the sale. Bad debts have been negligible, supporting the credit terms as favorable.

Below is a display of the HCS division monthly selling and administrative expenses:

Variable:
Sales Commissions	$ 1 per HCS
Fixed:
Wages and Salaries	$22,000
Utilities	$14,000

Insurance	$1,2000
Depreciation	$1,500
Miscellaneous	$3,000

Selling and administrative expenses are all paid during the month, in cash, with the exception of depreciation (of course) and insurance is pre-paid for the duration of the policy. HCS will make a purchase of a parcel of land during the month of May for $25,000 cash. HCS contributes to the corporate dividend at a rate of $12,000 each quarter, payable in the first month of the following quarter. HCS’s balance sheet at the end of the first quarter is shown below:

Assets
Cash	$14,000
Accounts receivable ($48,000 February sales: $168,000 March sales)	216,000
Inventory (31,500 units)	157,500
Prepaid insurance	14,400
Fixed assets, net of depreciation	172,700
Total Assets	$574,600
Liabilities and Stockholders Equity
Accounts payable	$85,750
Dividends payable	12,000
Capital Stock	300,000
Retained earnings	176,850
Total Liabilities and Stockholders Equity	$574600

An agreement with Bank of the West allows HCS to borrow in increments of $1,000 at the beginning of each month, up to a total loan amount of $150,000. The interest rate on these loans is 1% per month (pretty high but convenient nonetheless) but the interest is not compounded, meaning this is simple interest only. At quarter end, HCS would pay Bank of the West all of the accumulated interest on the loan and as much of the balance of the loan as possible (in $1,000 increments) while retaining the minimum $10,000 cash balance.

Required:

Prepare a master budget for the three- months ending June 30, 2019. Include the following budget schedules and financial statements:

5) Cash Budget. Show the cash budget by month and in total.

Answers to previous questions to help with answering question # 5

Part 1 – Sales Budget by month and total for the quarter
Sales Budget
	April	May	June	Quarter End
Expected Unit Sales	35,000	45,000	60,000	140,000
Unit Selling Price	$8	$8	$8	$8
Budgeted Sales in dollars	$280,000	$360,000	$480,000	$1,120,000

Part 2 –Schedule of expected cash collections from sales, by month and total.

Schedule of Cash Collection
	April	May	June	Quarter
February Sales (24,000 Units x $8)	$48,000 (24,000*8*25% collected in second month following the sales)
March Sales (28,000 Units x $8)	$112,000 (28,000*$8*50% collected in the following month of sale)	$56,000 (28,000*8*25% collected in second month following the sales)
April Sales	$70,000 ($280,000*25% collected in sales month)	$140,000 ($280,000*50% collected in the following month of sale)	$70,000 ($280,000*25% collected in second month following the sales)
May Sales		$90,000 ($360,000*25% collected in sales month)	$180,000 ($360,000*50% collected in the following month of sale)
June Sales			$120,000 ($480,000*25% collected in sales month)
Total Cash Collections	$230,000	$286,000	$370,000	$886,000

Part 3 – Merchandise purchases budget in units and in dollars. Show the budget by month and total

Merchandise Purchase Budget
	April	May	June	Quarter Ending	July
Expected Unit Sales	35000	45000	60000		40000
Plus: Desired Ending Inventory (90% of Next Month's Sales Unit)	40500 (45,000*90%)	54000 (60,000*90%)	36000 (40,000*90%)
Total Needs	75500	99000	96000
Less: Estimated Beginning Inventory (Ending Inventory of Previous Month)	31500	40500	54000
Required Merchandise Purchases in Units	44000	58500	42000
Cost per unit	$5	$5	$5
Merchandise Purchase Budget in dollars	$220,000	$292,500	$210,000	$722,500

Part 4 - Schedule of expected cash disbursements for merchandise purchases, by month and total

	April	May	June	Quarter Ending
Schedule of Expected Cash Disbursements for Purchases
Accounts Payable March	$85,750
April Purchases (50% in April and 50% in May)	$110,000	$110,000
May Purchases (50% in April and 50% in May)		$146,250	$146,250
June Purchases (50% in April and 50% in May)			$105,000
Total Expected Cash Disbursements for Purchases	$195,750	$256,250	$251,250	$703,250

How are debt and stock investments reported in financial statements

Pam Inc. produces joint products O, P, and Q from a joint process. Information concerning a batch produced in May at a joint cost of $90,000 was as follows

		After Split - Off
Product	Units Produced	Additonal Costs	Market Values
O	1,400	$22,000	$70,000
P	3,200	16,000	60,000
Q	6,400	4,000	8,000

                                                            

Required:

            (1) Allocate the joint costs to the joint products using the physical measures method.

            (2) Allocate the joint costs to the joint products using the net realizable method.

Choose an area of the Accounting Profession (i.e. Public Accounting, Taxation, Managerial Accounting, Payroll, Controller (General Ledger/payables), Government Accountant, Bookkeeper, or any other area of Accounting) and write a two page paper to me describing the following:

-Description of the area

-any certifications available or required

-typical duties and responsibilities

-career prospects

-educational requirements

-why you chose the area

The paper will be graded on content, spelling, grammar, and originality

Problem 11-15 Return on Investment (ROI) and Residual Income [LO11-1, LO11-2]

Financial data for Joel de Paris, Inc., for last year follow:

Joel de Paris, Inc. Balance Sheet
	Beginning Balance			Ending Balance
Assets
Cash	$	134,000		$	135,000
Accounts receivable		340,000			490,000
Inventory		572,000			481,000
Plant and equipment, net		874,000			854,000
Investment in Buisson, S.A.		394,000			428,000
Land (undeveloped)		252,000			245,000
Total assets	$	2,566,000		$	2,633,000
Liabilities and Stockholders' Equity
Accounts payable	$	371,000		$	349,000
Long-term debt		1,032,000			1,032,000
Stockholders' equity		1,163,000			1,252,000
Total liabilities and stockholders' equity	$	2,566,000		$	2,633,000

Joel de Paris, Inc. Income Statement
Sales					$	5,238,000
Operating expenses						4,557,060
Net operating income						680,940
Interest and taxes:
Interest expense	$	117,000
Tax expense		208,000				325,000
Net income					$	355,940

The company paid dividends of $266,940 last year. The “Investment in Buisson, S.A.,” on the balance sheet represents an investment in the stock of another company. The company's minimum required rate of return of 15%.

Required:

1. Compute the company's average operating assets for last year.

2. Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Round "Margin", "Turnover" and "ROI" to 2 decimal places.)

3. What was the company’s residual income last year?

1.	Average operating assets
2.	Margin		%
	Turnover
	ROI		%
3.	Residual income

Nexto Inc. uses the weighted average method of process costing. The company has the following information for the period:

Beginning Work in Process: 2000 units 100% complete for materials, 75% complete for conversion costs

Units started during the period: 10,000

Ending work in process: 4,000 units 75% complete for materials, 50% complete for conversion costs

Costs for the period:

Beginning work in process: Materials: $1,100 Conversion Costs: $2,000

Costs added during the period: Materials: $14,300 Conversion Costs: $13,000

  

A) What are the total units to account for?  

B) How many units were completed during the month?  

C) What are the equivalent units for materials?  

D) What are the equivalent units for conversion?  

E) What is the cost per equivalent unit for materials? $

F) What is the cost per equivalent unit for conversion? $

G) What is the cost assigned to units completed and transferred out? $

H) What is the cost assigned to units in ending work in process? $

I) What are the total costs to account for? $

Use the following information to answer the next six questions:

All balances are as of 12/31/2019 unless specified otherwise.

Loss on the Sale of Equipment	62,250	Income Tax Expense	48,750
Short Term Investments	1,500	Inventory	97,500
Retained Earnings, 1/1/19	281,000	Gain on Sale of Equipment	27,500
Goodwill	50,000	Cost of Goods Sold	204,000
Common Stock	???	Notes Payable 5/1/20	12,500
Cash	70,000	Sales Revenue	447,500
Accumulated Depreciation	50,000	Dividends	10,000
Notes Payable, due 12/31/21	104,500	Prepaid Expenses	2,500
Furniture	83,000	Accrued Expenses	28,000
Equipment	372,500	Accounts Receivable	42,000
Operating Expenses	43,000	Accounts Payable	36,000

5. Determine the Working Capital as of December 31, 2019.

1. 137,000
2. 5.9305
3. 187,500
4. 149,500
5. cannot be determined since the balance of Common Stock is not given

6. Determine Retained Earnings and Cash as of 12/31/2019.

	Retained Earnings		Cash
A.	$398,000		$70,000
B.	$281,000		$80,000
C.	$422,750		$517,500
D.	$388,000		$70,000
E.	$436,750		$80,000

7. Determine Total Liabilities as of 12/31/2019.

1. $48,500
2. $76,500
3. $153,000
4. $168,500
5. $181,000

8. Determine Income from Operations for 2019.

1. $200,500
2. $243,500
3. $117,000
4. $151,750
5. $165,750

9. Determine the Total Assets as of 12/31/2019.

1. $719,000
2. $769,000
3. $679,000
4. $669,000
5. $696,500

10. Determine the Profit Margin for the year ended December 31, 2019.              

1. 26%
2. 37%
3. 54%
4. 382%
5. $243,500

Denton Company manufactures and sells a single product. Cost data for the product are given:

Variable costs per unit:
Direct materials			$	6
Direct labor				9
Variable manufacturing overhead				4
Variable selling and administrative				3
Total variable cost per unit			$	22
Fixed costs per month:
Fixed manufacturing overhead	$	72,000
Fixed selling and administrative		163,000
Total fixed cost per month	$	235,000

The product sells for $48 per unit. Production and sales data for July and August, the first two months of operations, follow:

	Units Produced	Units Sold
July	24,000	20,000
August	24,000	28,000

The company’s Accounting Department has prepared the following absorption costing income statements for July and August:

	July			August
Sales	$	960,000		$	1,344,000
Cost of goods sold		440,000			616,000
Gross margin		520,000			728,000
Selling and administrative expenses		223,000			247,000
Net operating income	$	297,000		$	481,000

Required:

1. Determine the unit product cost under:

a. Absorption costing.

b. Variable costing.

2. Prepare contribution format variable costing income statements for July and August.

3. Reconcile the variable costing and absorption costing net operating incomes.

Alamar Petroleum Company offers its employees the option of contributing retirement funds up to 5% of their wages or salaries, with the contribution being matched by Alamar. The company also pays 85% of medical and life insurance premiums. Deductions relating to these plans and other payroll information for the first biweekly payroll period of February are listed as follows:
   

Wages and salaries	$	3,400,000
Employee contribution to voluntary retirement plan		98,000
Medical insurance premiums		56,000
Life insurance premiums		10,400
Federal income taxes to be withheld		540,000
Local income taxes to be withheld		67,000
Payroll taxes:
Federal unemployment tax rate		0.60	%
State unemployment tax rate (after FUTA deduction)		5.40	%
Social Security tax rate		6.20	%
Medicare tax rate		1.45	%

   
Required:
Prepare the appropriate journal entries to record salaries and wages expense and payroll tax expense for the biweekly pay period. Assume that no employee’s cumulative wages exceed the relevant wage bases for Social Security, and that all employees’ cumulative wages do exceed the relevant unemployment wage bases. Salaries are not yet paid. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

Explain the tax implications of compensation in the form of salary and wages from the perspectives of the employee and employer.

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

	Year 1			Year 2
Sales (@ $63 per unit)	$	1,071,000		$	1,701,000
Cost of goods sold (@ $29 per unit)		493,000			783,000
Gross margin		578,000			918,000
Selling and administrative expenses*		301,000			331,000
Net operating income	$	\277,000\		$	587,000

* $3 per unit variable; $250,000 fixed each year.

The company’s $29 unit product cost is computed as follows:

Direct materials	$	6
Direct labor		8
Variable manufacturing overhead		2
Fixed manufacturing overhead ($286,000 ÷ 22,000 units)		13
Absorption costing unit product cost	$	29

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 first two years of operations are:

	Year 1	Year 2
Units produced	22,000	22,000
Units sold	17,000	27,000

Required:

1. Using variable costing, what is the unit product cost for both years?

2. What is the variable costing net operating income in Year 1 and in Year 2?

3. Reconcile the absorption costing and the variable costing net operating income figures for each year.

record the transactions or events that should be recorded in the general journal

On August 2, Paid $2200 cash for August salon rent. On August 4, Incurred $400 of advertising costs due in 20 days On August 5, Purchased salon equipment for $120 On August 7, Paid for supplies (shampoos, creams, and gels) $350 On August 8, received $300 for selling gels On August 12, paid $200 water bill On August 12, paid $150 for electricity bill On August 14, incurred $1100 for the business’s bank loan due in 14 days On August 16, purchased a new chair set up for $450 On August 17, paid the amount due for the influencer $400 for advertising On August 19, paid $90 for my internet bill On August 21, received for $200 selling of shampoos On August 23, paid $110 for insurance On August 24, cleaner $110 On August 27, paid $1100 for the business’s bank loan On August 28, gas bills $35 On August 30, extra salary cost to a new trainee $400 On August 30, purchased a new tv screen $600 On August 30, paid $6000 in salaries for the month of August. On August 30, received $14000 from haircuts services during the month of August. And $500 of selling gels, creams, and shampoos