The Kingbird Company issued $360,000 of 11% bonds on January 1, 2020. The bonds are due January 1, 2025, with interest payable each July 1 and January 1. The bonds were issued at 102.

Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Kingbird Company records straight-line amortization semiannually.

Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Sage Hill Company. The following information relates to this agreement.

a) Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round answers to 0 decimal places, e.g. 5,265.)

b) Prepare all of the journal entries for the lessee for 2020 and 2021 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,265. Record journal entries in the order presented in the problem.)

The following is the balance sheet of Korver Supply Company at December 31, 2020 (prior year).

Transactions during 2021 (current year) were as follows:

Additional Information:

The notes payable are dated June 30, 2020, and are due on June 30, 2022. Interest at 8% is payable annually on June 30. Depreciation on the furniture and fixtures for 2021 is $36,000. The furniture and fixtures originally cost $460,000.

Required:
Prepare a classified balance sheet at December 31, 2021, by updating ending balances from 2020 for transactions during 2021 and the additional information. The cost of furniture and fixtures and their accumulated depreciation are shown separately. (Amounts to be deducted should be indicated by a minus sign.)

The following is the balance sheet of Korver Supply Company at December 31, 2020 (prior year). KORVER SUPPLY COMPANY Balance Sheet At December 31, 2020 Assets Cash $120,000 Accounts receivable 300,000 Inventory 200,000 Furniture and fixtures (net)  150,000 Total assets $770,000 Liabilities and Shareholders’ Equity Accounts payable (for merchandise) $190,000 Notes payable 200,000 Interest payable 6,000 Common stock 100,000 Retained earnings  274,000 Total liabilities and shareholders’ equity $770,000 Transactions during 2021 (current year) were as follows: 1. Sales to customers on account $800,000 2. Cash collected from customers 780,000 3. Purchase of merchandise on account 550,000 4. Cash payment to suppliers 560,000 5. Cost of merchandise sold 500,000 6. Cash paid for operating expenses 160,000 7. Cash paid for interest on notes 12,000 Additional Information: The notes payable are dated June 30, 2020, and are due on June 30, 2022. Interest at 6% is payable annually on June 30. Depreciation on the furniture and fixtures for 2021 is $20,000. The furniture and fixtures originally cost $300,000.

Required: Prepare a classified balance sheet at December 31, 2021, by updating ending balances from 2020 for transactions during 2021 and the additional information. The cost of furniture and fixtures and their accumulated depreciation are shown separately.

Langford Ltd. operates a chain of restaurants. The restaurants have performed very well, having established a reputation for affordable, value for money offerings and child-friendly facilities.

In seeking new growth opportunities, the company has embarked on a strategy of acquiring existing successful companies to supply key materials and ingredients to their restaurants. The rationale for this strategy is to secure supplies at more affordable prices as well as exploiting opportunities within these markets more generally.

With the growth of the company, it has become necessary to decentralize decision-making through the creation of two divisions, Supply Services and Restaurants. Each division is treated as an investment center with divisional managing directors being evaluated on the basis of annual return on investment (ROI). Each division in turn consists of a number of business units treated as profit centers for performance management.

Megaco (Pty) Ltd., which manufactures a variety of cheese products, has recently been acquired by Langford Ltd. Megaco’s main customer base is medium sized independent retailers, but it is looking to expand its market and thereby utilize its excess capacity.

A key ingredient of many of the restaurant meals is standard cheddar cheese which is procured centrally by the Restaurant division at a favourable price owing to volume discounts negotiated with the existing supplier.

In line with Langford’s acquisition strategy of securing restaurant supplies at more affordable prices; the Managing Director of Restaurant division have been encouraged to meet the Chief Executive Officer (CEO) of Megaco and discuss mutually beneficial ways of transacting internally. The restaurants currently purchase and use 2,500 kgs of cheddar cheese monthly and pay $12.00 per kg.

The Managing director of Restaurant division, together with Megaco’s CEO have met on two occasions and, although they recognized the benefit to the company as a whole from transacting internally, have not yet reached agreement on a transfer price for standard cheddar cheese.

Megaco currently sells the cheese to its existing customers at $15.00 per kg and its CEO is reluctant to reduce the price for the restaurants. However, in the interests of the company as a whole, he has offered to reduce his normal mark-up and hence discount the existing price by 10%. As he explained: ‘This is the best I can do, after all I have to cover my full costs and make a fair profit.' The Restaurant’s Managing Director was not prepared to accept this price and, although Langford Ltd.’s executive management team was disappointed that no deal had been struck, chose not to interfere.

Megaco’s standard cheddar cheese monthly manufacturing capacity and related costs are as follows:

Required:

1. From the perspective of the overall company, determine the range of transfer prices for cheddar cheese that should be negotiated between Megaco and Restaurant Division. Explain your answer.                                                                                                                                                                   (1 mark)
2. Assume after further negotiation, Megaco and the Restaurant division agree on a transfer price of $10.00. If 2500 kgs per month are transferred internally at this price, what will be the increase in overall monthly profit for Langford Kitchen? Show your calculations to support your answer.                                           

        (1.5 marks)

3. Assume that Megaco and the Restaurant Division agree on a transfer price of $10.00 per kg cheddar cheese:

1. What will be the increase in monthly profit for Restaurant division? Show your calculations to support your answer.                                                                                                                                              (1.5 marks)

2. Calculate Megaco’s additional monthly contribution margin             (1.5 marks)

4. Five months after Megaco started supplying cheddar cheese to the Restaurant Division, its existing retail customers increased their monthly orders of standard cheddar cheese by 2,500 kgs at the normal price of $15.00 per kg. Taking into account this change in Megaco's circumstances, if it continues supplying 2,500 kgs of standard cheddar cheese monthly to the Restaurant Division, Megaco's minimum acceptable transfer price per kg will be? Show your calculations to support your answer.                                                                                                                              

Langford Ltd. operates a chain of restaurants. The restaurants have performed very well, having established a reputation for affordable, value for money offerings and child-friendly facilities.

In seeking new growth opportunities, the company has embarked on a strategy of acquiring existing successful companies to supply key materials and ingredients to their restaurants. The rationale for this strategy is to secure supplies at more affordable prices as well as exploiting opportunities within these markets more generally.

With the growth of the company, it has become necessary to decentralize decision-making through the creation of two divisions, Supply Services and Restaurants. Each division is treated as an investment center with divisional managing directors being evaluated on the basis of annual return on investment (ROI). Each division in turn consists of a number of business units treated as profit centers for performance management.

Megaco (Pty) Ltd., which manufactures a variety of cheese products, has recently been acquired by Langford Ltd. Megaco’s main customer base is medium sized independent retailers, but it is looking to expand its market and thereby utilize its excess capacity.

A key ingredient of many of the restaurant meals is standard cheddar cheese which is procured centrally by the Restaurant division at a favourable price owing to volume discounts negotiated with the existing supplier.

In line with Langford’s acquisition strategy of securing restaurant supplies at more affordable prices; the Managing Director of Restaurant division have been encouraged to meet the Chief Executive Officer (CEO) of Megaco and discuss mutually beneficial ways of transacting internally. The restaurants currently purchase and use 2,500 kgs of cheddar cheese monthly and pay $12.00 per kg.

The Managing director of Restaurant division, together with Megaco’s CEO have met on two occasions and, although they recognized the benefit to the company as a whole from transacting internally, have not yet reached agreement on a transfer price for standard cheddar cheese.

Megaco currently sells the cheese to its existing customers at $15.00 per kg and its CEO is reluctant to reduce the price for the restaurants. However, in the interests of the company as a whole, he has offered to reduce his normal mark-up and hence discount the existing price by 10%. As he explained: ‘This is the best I can do, after all I have to cover my full costs and make a fair profit.' The Restaurant’s Managing Director was not prepared to accept this price and, although Langford Ltd.’s executive management team was disappointed that no deal had been struck, chose not to interfere.

Megaco’s standard cheddar cheese monthly manufacturing capacity and related costs are as follows:

Required:

1. From the perspective of the overall company, determine the range of transfer prices for cheddar cheese that should be negotiated between Megaco and Restaurant Division. Explain your answer. (1 mark)
2. Assume after further negotiation, Megaco and the Restaurant division agree on a transfer price of $10.00. If 2500 kgs per month are transferred internally at this price, what will be the increase in overall monthly profit for Langford Kitchen? Show your calculations to support your answer.       (1.5 marks)

3. Assume that Megaco and the Restaurant Division agree on a transfer price of $10.00 per kg cheddar cheese:
4. What will be the increase in monthly profit for Restaurant division? Show your calculations to support your answer.     (1.5 marks)
5. Calculate Megaco’s additional monthly contribution margin             (1.5 marks)
6. Five months after Megaco started supplying cheddar cheese to the Restaurant Division, its existing retail customers increased their monthly orders of standard cheddar cheese by 2,500 kgs at the normal price of $15.00 per kg. Taking into account this change in Megaco's circumstances, if it continues supplying 2,500 kgs of standard cheddar cheese monthly to the Restaurant Division, Megaco's minimum acceptable transfer price per kg will be? Show your calculations to support your answer.    (2.5 marks)

Power Train, Ltd.

We have smashing systems for reporting, tracking, and controlling costs on design projects. Our planning of projects is better than any I have seen at other companies. Our scheduling seemed to serve us well when we were small and we had only a few projects. Now that we have many more projects and schedule using multiproject software, there are too many occasions when the right people are not assigned to the projects deemed important to our success. This situation is costing us big money, headaches, and stress!

Claude Jones, VP, Design and Operations

Page 293

HISTORY

Power Train, Ltd. (PT), was founded in 1970 by Daniel Gage, a skilled mechanical engineer and machinist. Prior to founding PT he worked for three years as design engineer for a company that designed and built transmissions for military tanks and trucks. It was a natural transition for Dan to start a company designing and building power trains for farm tractor companies. Today, Dan is no longer active in the management of PT but is still revered as its founder. He and his family still own 25 percent of the company, which went public in 1998. PT has been growing at a 6 percent clip for the last five years but expects industry growth to level off as supply exceeds demand.

Today, PT continues its proud tradition of designing and building the best-quality power trains for manufacturers of farm tractors and equipment. The company employs 178 design engineers and has about 1,800 production and support staff. Contract design projects for tractor manufacturers represent a major portion of PT’s revenue. At any given time, about 45 to 60 design projects are going on concurrently. A small portion of their design work is for military vehicles. PT only accepts military contracts that involve very advanced, new technology and are cost plus.

A new phenomenon has attracted management of PT to look into a larger market. Last year a large Swedish truck manufacturer approached PT to consider designing power trains for its trucks. As the industry consolidates, the opportunities for PT should increase because these large firms are moving to more outsourcing to cut infrastructure costs and stay very flexible. Only last week a PT design engineer spoke to a German truck manufacturing manager at a conference. The German manager was already exploring outsourcing of drive trains to Porsche and was very pleased to be reminded of PT’s expertise in the area. A meeting is set up for next month.

CLAUDE JONES

Claude Jones joined PT in 1999 as a new MBA from the University of Edinburgh. He worked as a mechanical engineer for U.K. Hydraulics for five years prior to returning to school for the MBA. “I just wanted to be part of the management team and where the action is.” Jones moved quickly through the ranks. Today he is the vice president of design and operations. Sitting at his desk, Jones is pondering the conflicts and confusion that seem to be increasing in scheduling people to projects. He gets a real rush at the thought of designing power trains for large trucks; however, given their current project scheduling problems, a large increase in business would only compound their problems. Somehow these conflicts in scheduling have to be resolved before any serious thought can be given to expanding into design of power transmissions for truck manufacturers.

Jones is thinking of the problems PT had in the last year. The MF project is the first to come to mind. The project was not terribly complex and did not require their best design engineers. Unfortunately, the scheduling software assigned one of the most creative and expensive engineers to the MF project. A similar situation, but reversed, happened on the Deer project. This project involved a big customer and new hydrostatic technology for small tractors. In this project the scheduling software assigned engineers who were not familiar with small tractor transmissions. Somehow, thinks Jones, the right people need to be scheduled to the right projects. Upon reflection, this problem with scheduling has been increasing since PT went to multiproject scheduling. Maybe a project office is needed to keep on top of these problems.

A meeting with the information technology team and software vendors was positive but not very helpful because these people are not really into detailed scheduling problems. The vendors provided all sorts of evidence suggesting the heuristics used—least Page 294slack, shortest duration, and identification number—are absolutely efficient in scheduling people and minimizing project delays. One project software vendor, Lauren, kept saying their software would allow PT to customize the scheduling of projects and people to almost any variation selected. Lauren repeated over and over, “If the standard heuristics do not meet your requirements, create your own heuristics that do.” Lauren even volunteered to assist in setting up the system. But she is not willing to spend time on the problem until PT can describe to her exactly what criteria will be used (and their sequence) to select and schedule people to projects.

QUESTION: After reading the case, analyze the scheduling problem that is happening at Power Train and develop a set of descriptive rules and/or processes that Power Train can adopt so that it is well positioned to handle its expansion into the truck power train business.*********

1. Discuss how the role of the management accountant team can deliver better results for the company. Following the discussion, complete a 10-point action plan for the management accounting team to address.
2. Identify and discuss risks that the company needs to consider for 2020 that should be discussed at the Board level. You are to incorporate in your report the impacts of the Coronavirus pandemic.

Key information for the Plant City Division (PCD) of Barkley Industries for 2019 are as follows: Revenues $15,000,000 Operating Income 1,800,000 Total Assets 10,000,000 PCD managers are evaluated and rewarded on the basis of ROI defined as operating income divided by total assets. Barkley Industries expects its divisions to increase ROI each year. Next year, 2020, appears to be a difficult year for PCD. PCD had planned a new investment to improve quality but, in view of poor economic conditions, has postponed the investment. ROI for 2020 was certain to decrease if PCD had made the investment. Management is now considering ways to meet its target ROI of 20% for next year. It anticipates revenues to be steady at $15 million in 2020.

Required: (a) Calculate PCD’s return on sales and ROI for 2019.

(b) (1) By how much would PCD need to cut costs in 2020 to achieve its target ROI of 20%, assuming no change in total assets between 2019 and 2020?

(2) By how much would PCD need to decrease total assets in 2020 to achieve its target ROI of 20%, assuming no change in operating income between 2019 and 2020?

(c) Calculate PCD’s Residual Income (RI)* in 2019, assuming a required rate of return on investment of 15%.

(d) PCD wants to increase RI by 50% in 2020. Assuming it could cut costs by $45,000 in 2020, by how much would PCD need to decrease total assets in 2020?

(e) Barkley Industries is concerned that the focus on cost cutting, asset sales and no new investments will have an adverse long-run effect on PCD’s customers. Yet Barkley wants PCD to meet its financial goals. What other measurements, if any do you recommend that Barkley use? Explain briefly. * Residual Income = Operating Income – (Total Assets x Required Rate of Return) [Residual Income as a performance measure has the advantage of motivating managers to act in the best interest of the company as a whole.]