Instructions
(a) Journalize the transactions.
(b) Indicate the statement presentation of interest revenue and service charges.
Exercise 3
Para Float Company often requires customers to sign promissory notes for major credit purchases. Journalize the following transactions for Para Float Company.
Feb. 12 Accepted a $30,000, 4%, 60-day note from Yancy Blair for a 24-foot motorboat built to his specifications.
April 14 Received notification from Yancy Blair that he was unable to honor his promissory note but that he expects to pay the amount owed in May.
May 26 Received a check from Yancy Blair for the total amount owed.
June 10 Received notification by the bank that Yancy Blair check was being returned "NSF" and that Mr. Blair had declared personal bankruptcy.
In: Accounting
Adger Corporation is a service company that measures its output based on the number of customers served. The company provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results for May as shown below:
|
Fixed Element per Month |
Variable Element per Customer Served |
Actual Total for May |
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| Revenue | $ | 6,600 | $ | 213,500 | |||
| Employee salaries and wages | $ | 62,000 | $ | 2,300 | $ | 141,100 | |
| Travel expenses | $ | 540 | $ | 15,700 | |||
| Other expenses | $ | 41,000 | $ | 38,900 | |||
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When preparing its planning budget the company estimated that it would serve 30 customers per month; however, during May the company actually served 35 customers.
1. What amount of revenue would be included in Adger’s flexible budget for May?
2. What amount of employee salaries and wages would be included in
Adger’s flexible budget for May?
3. What amount of travel expenses would be included in Adger’s flexible budget for May?
4. What amount of other expenses would be included in Adger’s
flexible budget for May?
5. What net operating income would appear in Adger’s flexible budget for May?
6. What is Adger’s revenue variance for May? (Indicate the effect
of each variance by selecting "F" for favorable, "U" for
unfavorable, and "None" for no effect (i.e., zero variance). Input
all amounts as positive values.)
7. What is Adger’s employee salaries and wages spending variance for May? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
8. What is Adger’s travel expenses spending variance for May? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
9. What is Adger’s other expenses spending variance for May?
(Indicate the effect of each variance by selecting "F" for
favorable, "U" for unfavorable, and "None" for no effect (i.e.,
zero variance). Input all amounts as positive values.)
10. What amount of revenue would be included in Adger’s planning
budget for May?
11. What amount of employee salaries and wages would be included in
Adger’s planning budget for May?
12. What amount of travel expenses would be included in Adger’s
planning budget for May?
13. What amount of other expenses would be included in Adger’s
planning budget for May?
14. What activity variance would Adger report in May with respect
to its revenue? (Indicate the effect of each variance by selecting
"F" for favorable, "U" for unfavorable, and "None" for no effect
(i.e., zero variance). Input all amounts as positive
values.)
15. What activity variances would Adger report with respect to each
of its expenses for May? (Indicate the effect of each variance by
selecting "F" for favorable, "U" for unfavorable, and "None" for no
effect (i.e., zero variance). Input all amounts as positive
values.)
In: Accounting
41. Ford Company Retained Earnings increased $20,000 during the year and the Company paid dividends of $4,000. What was the net income (loss) for the year?
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$24,000. |
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$34,000. |
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$(24,000). |
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$4,000. |
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Some other amount. |
43. Missouri Magazine Publishing Company sells magazine subscriptions on an annual basis covering 12 issues. Subscriptions totaling $24,000 were sold in November, and the first magazines are delivered in December. The total amount collected was recorded in Unearned Magazine Revenues. The adjusting entry required at December 31 would include:
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a debit to Unearned Magazine Revenues for $22,000. |
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a credit to Unearned Magazine Revenues for $22,000. |
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a debit to Magazine Revenues for $2,000. |
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a credit to Magazine Revenues for $2,000. |
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a credit to Unearned Magazine Revenues for $2,000. |
49. Pal Company made an advance payment of $3,500 for seven months' rent on November 1, 2004 and debited an asset account. The December 31 adjusting entry for rent expense should be:
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a debit to Rent Expense for $2,500. |
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a debit to Rent Expense for $1,000. |
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a credit to Prepaid Rent for $3,500. |
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a credit to Unearned Rent for $1,000. |
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a debit to Unearned Rent for $1,000. |
52. Office equipment was purchased on December 1, 2004, for $3,000 and has an estimated useful life of five years and no residual value. The adjusting entry required at the end of December, 2004 includes a:
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Debit to Accumulated Depreciation: Office Equipment for $50. |
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Credit to Accumulated Depreciation: Office Equipment for $600. |
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Credit to Office Equipment for $600. |
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Debit to Depreciation Expense for $50. |
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none of the above. |
In: Accounting
"Acquisitions" Please respond to the following: Use the Internet or Strayer online database to research a publically traded company that recently acquired another company. Analyze the performance of the combined company, and ascertain at least two (2) benefits that the combined companies gained from the acquisition.
In: Accounting
Smooth Blend, Inc., a calendar year company, produces several blends of whiskey. Maturing whiskey is stored for 3 years in a large, dark aromatic warehouse owned by Smooth Blend. Smooth Blend sells the whiskey to Distributor Company at the beginning of the aging process (January 1, 2011). Distributor Company will pick up the whiskey at the end of the aging process (December 31, 2013) and take it to its facilities for bottling. Distributor Company pays the full purchase price to Smooth Blend on January 1, 2011 to protect itself against price increases. When should Smooth Blend recognize revenue? Why? Would your answer change If the quality control manager of Distributor Company had the right to taste the whiskey on December 31, 2013 and receive a full refund if not satisfied with the quality of the liquor? If there was no right of return but Smooth Blend promised to help Distributor Company attract customers? If Smooth Blend acquired a fixed price option from Distributor Company to repurchase the whiskey in 6 months?
In: Accounting
Problem 1
On December 31, 20x0, the Western Corporation sold inventory to Southern Inc. on the following terms: the full value of the inventory of $400,000 is payable on December 31, 20x3 and interest of 3% on the face value of the note ($400,000) is payable each December 31. Western’s incremental borrowing rate is 5% and Southern’s incremental borrowing rate is 9%.
Required –
a) Prepare all journal entries relating to the above transaction for the length of the note assuming that Western is:
a publicly accountable entity, and
a private company following ASPE who wants to keep accounting for
these types of transactions as simple as possible
b) Repeat Part (a) on the assumption that the terms are as follows: Southern is to pay
Western equal annual payments of principal and interest at an interest rate of 3%
over 4 years starting December 31, 20x1.
c) Assume now that neither company’s incremental borrowing rate is known but we
know that the cash price of the equipment is $350,000. The terms are as follows: 0% interest for 3 years and the full $400,000 is payable on December 31, 20x3. Assuming that Western is a publicly accountable entity, prepare all journal entries for the length of the note.
In: Accounting
The financial statements for Armstrong and Blair companies are summarized here:
| Armstrong Company |
Blair Company |
|||||||
| Balance Sheet | ||||||||
| Cash | $ | 30,000 | $ | 17,000 | ||||
| Accounts Receivable, Net | 35,000 | 25,000 | ||||||
| Inventory | 90,000 | 30,000 | ||||||
| Equipment, Net | 170,000 | 290,000 | ||||||
| Other Assets | 40,000 | 403,000 | ||||||
| Total Assets | $ | 365,000 | $ | 765,000 | ||||
| Current Liabilities | $ | 90,000 | $ | 40,000 | ||||
| Note Payable (long-term) | 50,000 | 360,000 | ||||||
| Total Liabilities | 140,000 | 400,000 | ||||||
| Common Stock (par $10) | 145,000 | 195,000 | ||||||
| Additional Paid-in Capital | 25,000 | 105,000 | ||||||
| Retained Earnings | 55,000 | 65,000 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 365,000 | $ | 765,000 | ||||
| Income Statement | ||||||||
| Sales Revenue | $ | 435,000 | $ | 795,000 | ||||
| Cost of Goods Sold | 240,000 | 400,000 | ||||||
| Other Expenses | 155,000 | 310,000 | ||||||
| Net Income | $ | 40,000 | $ | 85,000 | ||||
| Other Data | ||||||||
| Estimated value of each share at end of year | $ | 18 | $ | 27 | ||||
| Selected Data from Previous Year | ||||||||
| Accounts Receivable, Net | $ | 15,000 | $ | 33,000 | ||||
| Inventory | 87,000 | 40,000 | ||||||
| Equipment, Net | 170,000 | 290,000 | ||||||
| Note Payable (long-term) | 50,000 | 65,000 | ||||||
| Total Stockholders’ Equity | 226,000 | 435,000 | ||||||
The companies are in the same line of business and are direct competitors in a large metropolitan area. Both have been in business approximately 10 years and each has had steady growth. Despite these similarities, the management of each has a different viewpoint in many respects. Blair is more conservative, and as its president said, “We avoid what we consider to be undue risk.” Both companies use straight-line depreciation, but Blair estimates slightly shorter useful lives than Armstrong. No shares were issued in the current year and neither company is publicly held. Blair Company has an annual audit by a CPA, but Armstrong Company does not. Assume the end-of-year total assets and net equipment balances approximate the year’s average and all sales are on account.
Required:
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In: Accounting
Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $22.85 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customers—particularly those located on remote ranches that require considerable travel time. The owner’s daughter, home for the summer from college, has suggested investigating this question using activity-based costing. After some discussion, she designed a simple system consisting of four activity cost pools. The activity cost pools and their activity measures appear below:
| Activity Cost Pool | Activity Measure | Activity for the Year | |
| Cleaning carpets | Square feet cleaned (00s) | 13,000 | hundred square feet |
| Travel to jobs | Miles driven | 190,000 | miles |
| Job support | Number of jobs | 2,000 | jobs |
| Other (organization-sustaining costs and idle capacity costs) | None | Not applicable | |
The total cost of operating the company for the year is $353,000 which includes the following costs:
| Wages | $ | 141,000 |
| Cleaning supplies | 24,000 | |
| Cleaning equipment depreciation | 11,000 | |
| Vehicle expenses | 26,000 | |
| Office expenses | 70,000 | |
| President’s compensation | 81,000 | |
| Total cost | $ | 353,000 |
Resource consumption is distributed across the activities as follows:
| Distribution of Resource Consumption Across Activities | ||||||||||
| Cleaning Carpets | Travel to Jobs | Job Support | Other | Total | ||||||
| Wages | 74 | % | 14 | % | 0 | % | 12 | % | 100 | % |
| Cleaning supplies | 100 | % | 0 | % | 0 | % | 0 | % | 100 | % |
| Cleaning equipment depreciation | 69 | % | 0 | % | 0 | % | 31 | % | 100 | % |
| Vehicle expenses | 0 | % | 78 | % | 0 | % | 22 | % | 100 | % |
| Office expenses | 0 | % | 0 | % | 60 | % | 40 | % | 100 | % |
| President’s compensation | 0 | % | 0 | % | 31 | % | 69 | % | 100 | % |
Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.
Required:
1. Prepare the first-stage allocation of costs to the activity cost pools.
2. Compute the activity rates for the activity cost pools.
3. The company recently completed a 200 square foot carpet-cleaning job at the Flying N Ranch—a 53-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system.
4. The revenue from the Flying N Ranch was $45.70 (200 square feet @ $22.85 per hundred square feet). Calculate the customer margin earned on this job.
In: Accounting
Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $22.30 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customers—particularly those located on remote ranches that require considerable travel time. The owner’s daughter, home for the summer from college, has suggested investigating this question using activity-based costing. After some discussion, she designed a simple system consisting of four activity cost pools. The activity cost pools and their activity measures appear below:
| activity cost pool | activity measure | activity for the year |
| cleaning carpets | square foot cleaned | 10,000 hundred square feet |
| travel to jobs | miles driven | 304,500 miles |
| job support | number of jobs | 1,700 jobs |
| other (organizational sustaining costs and idle capacity costs | none | n/a |
The total cost of operating the company for the year is $335,000 which includes the following costs:
Wages $ 146,000
Cleaning supplies 21,000
Cleaning equipment depreciation 12,000
Vehicle expenses 27,000
Office expenses 58,000
President’s compensation 71,000
Total cost $ 335,000
Resource consumption is distributed across the activities as follows:
| cleaning carpets | travel to jobs | job support | other | total | |
| wages | 75% | 12% | 0 | 13% | 100% |
| cleaning supplies | 100% | 0 | 0 | 0 | 100% |
| cleaning equipment depreciation | 74% | 0 | 0 | 26% | 100% |
| vehicle expenses | 0 | 77% | 0 | 23% | 100% |
| offices expenses | 0 | 56% | 44% | 100% | |
| presidents compensation | 0 | 33% | 67% | 100% |
Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.
Required:
1. Prepare the first-stage allocation of costs to the activity cost pools.
2. Compute the activity rates for the activity cost pools.
3. The company recently completed a 600 square foot carpet-cleaning job at the Flying N Ranch—a 57-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system.
4. The revenue from the Flying N Ranch was $133.80 (600 square feet @ $22.30 per hundred square feet). Calculate the customer margin earned on this job.
In: Accounting
Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $23.50 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customers—particularly those located on remote ranches that require considerable travel time. The owner’s daughter, home for the summer from college, has suggested investigating this question using activity-based costing. After some discussion, she designed a simple system consisting of four activity cost pools. The activity cost pools and their activity measures appear below:
| Activity Cost Pool | Activity Measure | Activity for the Year | |
| Cleaning carpets | Square feet cleaned (00s) | 6,500 | hundred square feet |
| Travel to jobs | Miles driven | 263,500 | miles |
| Job support | Number of jobs | 2,000 | jobs |
| Other (organization-sustaining costs and idle capacity costs) | None | Not applicable | |
The total cost of operating the company for the year is $352,000 which includes the following costs:
| Wages | $ | 142,000 |
| Cleaning supplies | 24,000 | |
| Cleaning equipment depreciation | 10,000 | |
| Vehicle expenses | 33,000 | |
| Office expenses | 67,000 | |
| President’s compensation | 76,000 | |
| Total cost | $ | 352,000 |
Resource consumption is distributed across the activities as follows:
| Distribution of Resource Consumption Across Activities | ||||||||||
| Cleaning Carpets | Travel to Jobs | Job Support | Other | Total | ||||||
| Wages | 72 | % | 11 | % | 0 | % | 17 | % | 100 | % |
| Cleaning supplies | 100 | % | 0 | % | 0 | % | 0 | % | 100 | % |
| Cleaning equipment depreciation | 68 | % | 0 | % | 0 | % | 32 | % | 100 | % |
| Vehicle expenses | 0 | % | 81 | % | 0 | % | 19 | % | 100 | % |
| Office expenses | 0 | % | 0 | % | 65 | % | 35 | % | 100 | % |
| President’s compensation | 0 | % | 0 | % | 26 | % | 74 | % | 100 | % |
Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.
Required:
1. Prepare the first-stage allocation of costs to the activity cost pools.
2. Compute the activity rates for the activity cost pools.
3. The company recently completed a 200 square foot carpet-cleaning job at the Flying N ranch—a 53-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system.
4. The revenue from the Flying N ranch was $47.00 (200 square feet @ $23.50 per hundred square feet). Calculate the customer margin earned on this job.
In: Accounting