Part A

The following are the final accounts of Lumix Trading for the year ended 31 December 2019.

Lumix Trading

Income statement for the year ended 31 December 2019

RM RM

Sales 100,000 Less: Return inwards (3,200) Net Sales 96,800 Less: Cost of goods sold

Opening inventory 25,000 Purchases 35,000 60,000

Less: Closing inventory (12,000) 48,000

Gross profit 48,800 Add: Revenue 6,000 Less: Expenses (34,200) Net Profit 20,600

Lumix Trading

Balance sheet as at 31 December 2019

RM RM

Current assets

Bank 6,000 Account receivable 11,400 Inventories 12,000 29,400

Property, plant and equipment 169,000 Total assets 198,400

Current liabilities 11,400

Owner's equity

Capital 166,400 Add: Net Profit 20,600 187,000 Total liabilities and owner's equity 198,400

Required:

Compute and comment on the following ratios:

a) Gross profit

b) Profit margin

c) Inventory turnover

d) Account Receivable turnover

e) Debt to Asset ratio

f) Current ratio

Part B

Sofia Corporation had these transactions during 2020:

i) Purchased a machine for RM30,000, giving a long-term note in exchange. ii) Issued RM50,000 par value common stock or cash.

iii) Paid RM18,000 on accounts payable.

iv) Declared and paid a cash dividend of RM13,000.

v) Sold a long-term investment with cost RM15,000 for RM15,000 cash. vi) Collected RM16,000 of accounts receivable.

vii) Receipt of interest on notes payable amounting RM1,500.

Required:

Indicate whether each transaction resulted in a cash flow from operating activities, financing activities or investing activities.  

What is the future value of an annuity that pays $4,200 per year for the next 12 years? The interest rate is 8.2%. Please show work.

An income statement for Sam's Bookstore for the first quarter of the year is presented below: Sam's Bookstore Income Statement For Quarter Ended March 31 Sales $ 910,000 Cost of goods sold 530,000 Gross margin 380,000 Selling and administrative expenses Selling $ 113,000 Administration 130,000 243,000 Net operating income $ 137,000 On average, a book sells for $70. Variable selling expenses are $5 per book with the remaining selling expenses being fixed. The variable administrative expenses are 3% of sales with the remainder being fixed. The cost formula for selling and administrative expenses with "X" equal to the number of books sold is:

Multiple Choice Y = $164,300 + $5.00X Y = $164,300 + $7.10X Y = $150,700 + $9.20X Y = $150,700 + $7.10X

Todd Enterprises is preparing a cash budget for the second quarter of the coming year. The following data have been forecasted:

Additional data:

(1) Sales are 40% cash and 60% credit. The collection pattern for credit sales is 50% in the month following the sale and 50% in the month thereafter. Total sales in March were $125,000.

(2) Purchases are all on credit, with 40% paid in the month of purchase and 60% paid in the following month.

(3) Operating expenses are paid in the month they are incurred.

(4) A minimum cash balance of $25,000 is required at the end of each month.

(5) Loans are used to maintain the minimum cash balance. At the end of each month, interest of 1% per month is paid on the outstanding loan balance as of the beginning of the month. Repayments are made at the end of the month if the cash balance exceeds $25,000.

Prepare the company's cash budget for May. Show the ending loan balance at May 31. Show all calculations.

Find the present value of a deferred annuity of $500 a year for 6 years that is deferred 5 years if money is worth 6%

Please show work!

The first audit of the books of Fenimore Company was made for the year ended December 31, 2018. In examining the books, the auditor found that certain items that resulted from changes in accounting policies, accounting estimates and errors had been overlooked or incorrectly handled in the last 3 years.

Instructions

1.      Describe the types of accounting changes.                                                     

2.      Explain the accounting procedures for changes in accounting policies and estimates and the correction of errors.                                                                                 

3.      Assuming that the books for 2018 have not been closed, prepare the correcting journal entries related to the following items. Disregard the effects of these corrections on income tax.

a)      At the beginning of 2016, the company purchased a machine for $510,000 (residual value of $51,000) that had a useful life of 5 years. The bookkeeper used straight-line depreciation but failed to deduct the residual value in computing the depreciation base for the years 2016, 2017, 2018.                                                                    

b)      At the end of 2017, the company failed to accrue sales salaries of $45,000.

c)      A tax lawsuit that involved the year 2013 was settled late in 2018. It was determined that the company owed an additional $85,000 in taxes related to 2016. The company did not record a liability in 2016 or 2017 because the possibility of loss was considered remote and debited the $85,000 to a loss account in 2015 and credited Cash for the same amount.                                                                            (1 mark)

d)      Fenimore Company purchased a copyright from another company early in 2016 for $50,000. Fenimore had not amortized the copyright because its value had not diminished. The copyright has a useful life at purchase of 20 years.          

e)      In 2018, the company wrote off $87,000 of inventory considered to be obsolete; this loss was charged directly to Retained Earnings and credited to Inventory.

f)       Year-end salaries and wages payable of $3,400 were not recorded because the bookkeeper thought that “they were immaterial.”                                  

g)      Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of $3,300 because “the amount of the cheque is about the same every year.”                                                                                

h)      Reported sales revenue for the year is $1,908,000. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that “the sales tax is a selling expense.” At the end of the current year, the balance in the Sales Tax Expense account is $103,400.        

Recently it was announced that BB&T and SunTrust will merge in the next year. The new bank (not yet named) will become the sixth largest bank in America. Do you favor this merger? What are the pros and cons of such a merger? Do you believe this is the beginning of more consolidation in the banking industry?

Anderson Ltd. manufacture gearboxes for use in cars. At the start of the

year, the management of Anderson Ltd. estimated that its costs would be:

This was based on the following:

80 employees

2000 hours worked by each employee

40 000 gearboxes manufactured in the year as budgeted production

£200 unit selling price.

You have recently been employed by the company to establish a standard

costing system. At the end of the year you were able to extract the

following information:

• labour costs £4.40/hour

• 32 000 units sold

• £210/unit selling price

• 160 000 hours were worked

• variable production overheads were £640 000

• fixed production overheads were £810 000

• administration costs were £350 000

• raw material prices were 10% higher than expected

• total expenditure on raw material was £3.696 M

• there were no opening or closing stocks of raw materials.

(a) You are required to prepare an operating statement for the year, using

a standard absorption costing system.

Calculations should proceed according to the following headings

suffixing ‘A’ for Adverse and ‘F’ for Favourable where appropriate.

Resulting quantities required for the statement are then entered in the

‘Operating Statement for the Year’ sheet shown on page 6.

(All working must be shown.)

(Budgeted) Costs

Unit cost

£

Direct labour

Direct materials

Variable overhead

Fixed overhead

Admin. overhead

Total

Selling price

Standard profit (per unit)

Budgeted profit

Sales price variance

Sales quantity variance

Cost Variances

Labour Variances

Standard hours =

Standard cost/hour =

Rate variance =

Standard time =

Actual time =

Time variance =

Efficiency variance =

Material Variances

Material price =

Material usage      – standard =

– actual =

Material usage variance =

Variable overheads

Standard cost =

Actual cost =

Expenditure variance =

Efficiency variance =

Fixed overheads

Expenditure variance =

Volume variance =

Admin overhead (treat as fixed)

Expenditure variance =

Volume variance =

Operating Statement for the Year

£’000 £’000

Budgeted Profit

Sales variance      – price

– quantity

Cost variances

Labour                  – rate

– efficiency

Material                – price

– usage

Variable                – expenditure

– efficiency

Fixed                    – expenditure

– volume

Admin                  – expenditure

– volume

Actual Profit

(b) Give reasons/explanations why the variances in (a) above have

occurred for the following:

(i) material price

(ii) labour efficiency

(iii) fixed overhead expenditure.

(c) The accountant suggests that a standard marginal costing system may

be more suitable. He asks you to outline the strengths and

weaknesses of both systems and recommend the most suitable.

(d) The Board of Anderson Ltd. want to adopt ‘ideal’ standards because

they feel it will encourage harder work. You are asked to produce a

brief report giving your views.

Numbers (in thousands) of forest fires over the year and the number (in hundred thousands) of aces burned for 7 recent years are shown.

Number of fires (x): 72 69 58 47 84 62 57

Number of acres burned (y): 73 70 59 48 85 63 58

The correlation coefficient for the data is r = 1 and standard deviation = 0.05.

Should the regression analysis be done?

Find the equation of the regression line. Round to three decimal places.

y' = ax+b

a =

b =