Sweeten Company had no jobs in progress at the beginning of March and no beginning inventories. It started only two jobs during March—Job P and Job Q. Job P was completed and sold by the end of March and Job Q was incomplete at the end of March. The company uses a plantwide predetermined overhead rate based on direct labour-hours. The following additional information is available for the company as a whole and for Jobs P and Q (all data and questions relate to the month of March): Estimated total fixed manufacturing overhead $ 12,800 Estimated variable manufacturing overhead per direct labour-hour $ 1.10 Estimated total direct labour-hours to be worked 3,200 Total actual manufacturing overhead costs incurred $ 15,600 Job P Job Q Direct materials $ 16,100 $ 9,200 Direct labour $ 39,100 $ 10,200 Actual direct labour-hours worked 2,300 600

9. Prepare the journal entry to transfer costs from Work in Process to Finished Goods. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

10. Prepare a completed Work in Process T-account including the beginning and ending balances and all debits and credits posted to the account. (Do not leave any empty spaces; input a 0 wherever it is required.)

11. Prepare a schedule of cost of goods sold. (Do not leave any empty spaces; input a 0 wherever it is required.)

12. Prepare the journal entry to transfer costs from Finished Goods to Cost of Goods Sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

13. What is the amount of underapplied or overapplied overhead?

14. Prepare the journal entry to close the amount of underapplied or overapplied overhead to the appropriate account. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

The Cherry & White Bike Company is a small closely-held company with two owners. Its two owners, Charlotte and George, have decided to expand the business. You are CWB’s accountant. Your responsibilities include maintaining all accounting records and preparing annual financial statements.

CWB wants to take out a loan to expand its business in the coming year. The banks and lending institutions require a set of financial statements prepared under U.S. GAAP to evaluate CWB’s credit worthiness.

You must prepare a complete set of financial statements including the notes to the financial statements for the quarter ending March 31, 2018. You need to choose CWB’s accounting policies and methods for areas including inventory cost flow, revenue recognition, and depreciation. You will need to consider the proper classification of assets and liabilities as current and non-current on the balance sheet.

To obtain a loan with the lowest interest rate available, CWB needs to show high profitability, and strong liquidity and solvency. You realize the common financial statement analysis ratios for profitability, solvency and liquidity will depend on the accounting methods you choose. So, you carefully analyze the accounting choices in light of common financial statement ratios.

The owners also have expressed to you that they need to know their inventory and cost of goods sold to manage purchases and pricing. So, you are highly considering using a perpetual inventory system.

You are presented with a trial balance as of the end of 2017 and must add the transactions and activities that occurred in the first quarter of 2018 as listed below. You can add accounts to the trial balance, as needed. In the first quarter of 2018 Cherry & White Bikes had the following transactions

January 1:     The owners hire Nina Marton to manage the store, paying her a salary of $2,800 a month. Lisa is paid on the 1st of every month, starting on February 1 (which would represent her January pay). They have one other employee who they pay $1,900 a month, also on the 1^st of the following month. Employees work 40 hours a week.

January 14:    Paid utilities for 4^th quarter of 2017, $775.

February 1:    Installed new light fixtures and display cases in the leased store. CWB paid $1,600 for the fixtures, $120 for shipping to the store, and $500 to an electrician to install. CWB paid 6% sales tax on the fixtures and shipping in addition to the cost of the fixtures and equipment. It did not pay a sales tax to the electrician. CWB anticipates being in the store for at least 5 years. CWB cannot take the light fixtures with them if they relocate as they will revert to the lessor.

CWB can take the display cases if they move. The display cases cost $3,400. CWB also incurred 6% sales tax on the display cases on addition to their cost.

Both the display cases and light-fixtures have a seven-year useful life.

March 1:        CWB invests in a $4,000 3-month treasury bill paying interest of 3.0%.

March 24:      A customer puts down a deposit of $700 on a high-end racing bike that sells for $2,900. CWB ordered the bike from the manufacturer. The manufacturer promises CWB will have the bike at the store on April 3.

Here is other information on other activity and recurring transactions that occurred during the period.

CWB offers bike tune-ups for $80 each. CWB’s employee is an expert tune-ups, taking about one hour per bike for a tune-up. Below is the number of tune-ups performed in each month. All customers pay in cash. (For recording the transactions, you can assume all tune-ups are done the last day of the month).

CWB has the following purchases and sales of bikes during the quarter+:

+All purchasers of standard bikes are given the option of buying a bike for $400, or a bike with two years of tune-ups for $500. Four of the bikes sold on February 21^st were sold with the tune-up option.

**All purchases were made using cash except the March 2nd purchase for which CWB obtained two-months credit from the bike supplier.

CWB took out a five-year loan for $15,000 with an interest rate of 12% on January 1, 2017. The loan matures on January 1, 2022.

CWB rents its premises for $1,000 per month, with rent due on the 15^st of the prior month.

CWB has a business insurance policy, which it purchased for $3,300 on July 1, 2017. The policy runs until June 30, 2018.

CWB owns various tools and equipment which it pools for purpose of calculating depreciation. In the past it has used straight-line depreciation over a twelve-year period with no scrap or salvage value for these assets. However, with technology changing rapidly, CWB questions whether it will have to replace the equipment earlier.

On April 7 received its utilities bill for the first quarter of 2018 - $800.

The tax rate is 20%.

Cherry & White Bike Company

Post-Closing Trial Balance

12/31/2017

NEED Journal Entries, Income Statement, Statement of retained earnings, and Balance Sheet

Cherry & White Bike Company

The Cherry & White Bike Company is a small closely-held company with two owners. Its two owners, Charlotte and George, have decided to expand the business. You are CWB’s accountant. Your responsibilities include maintaining all accounting records and preparing annual financial statements.

CWB wants to take out a loan to expand its business in the coming year. The banks and lending institutions require a set of financial statements prepared under U.S. GAAP to evaluate CWB’s credit worthiness.

You must prepare a complete set of financial statements including the notes to the financial statements for the quarter ending March 31, 2018. You need to choose CWB’s accounting policies and methods for areas including inventory cost flow, revenue recognition, and depreciation. You will need to consider the proper classification of assets and liabilities as current and non-current on the balance sheet.

To obtain a loan with the lowest interest rate available, CWB needs to show high profitability, and strong liquidity and solvency. You realize the common financial statement analysis ratios for profitability, solvency and liquidity will depend on the accounting methods you choose. So, you carefully analyze the accounting choices in light of common financial statement ratios.

The owners also have expressed to you that they need to know their inventory and cost of goods sold to manage purchases and pricing. So, you are highly considering using a perpetual inventory system.

You are presented with a trial balance as of the end of 2017 and must add the transactions and activities that occurred in the first quarter of 2018 as listed below. You can add accounts to the trial balance, as needed. In the first quarter of 2018 Cherry & White Bikes had the following transactions

January 1:       The owners hire Nina Marton to manage the store, paying her a salary of $2,800 a month. Lisa is paid on the 1st of every month, starting on February 1 (which would represent her January pay). They have one other employee who they pay $1,900 a month, also on the 1^st of the following month. Employees work 40 hours a week.

January 14:     Paid utilities for 4^th quarter of 2017, $775.

February 1:     Installed new light fixtures and display cases in the leased store. CWB paid $1,600 for the fixtures, $120 for shipping to the store, and $500 to an electrician to install. CWB paid 6% sales tax on the fixtures and shipping in addition to the cost of the fixtures and equipment. It did not pay a sales tax to the electrician. CWB anticipates being in the store for at least 5 years. CWB cannot take the light fixtures with them if they relocate as they will revert to the lessor.

CWB can take the display cases if they move. The display cases cost $3,400. CWB also incurred 6% sales tax on the display cases on addition to their cost.

Both the display cases and light-fixtures have a seven-year useful life.

March 1:          CWB invests in a $4,000 3-month treasury bill paying interest of 3.0%.

March 24:        A customer puts down a deposit of $700 on a high-end racing bike that sells for $2,900. CWB ordered the bike from the manufacturer. The manufacturer promises CWB will have the bike at the store on April 3.

Here is other information on other activity and recurring transactions that occurred during the period.

CWB offers bike tune-ups for $80 each. CWB’s employee is an expert tune-ups, taking about one hour per bike for a tune-up. Below is the number of tune-ups performed in each month. All customers pay in cash. (For recording the transactions, you can assume all tune-ups are done the last day of the month).

CWB has the following purchases and sales of bikes during the quarter+:

+All purchasers of standard bikes are given the option of buying a bike for $400, or a bike with two years of tune-ups for $500. Four of the bikes sold on February 21^st were sold with the tune-up option.

**All purchases were made using cash except the March 2nd purchase for which CWB obtained two-months credit from the bike supplier.

CWB took out a five-year loan for $15,000 with an interest rate of 12% on January 1, 2017. The loan matures on January 1, 2022.

CWB rents its premises for $1,000 per month, with rent due on the 15^st of the prior month.

CWB has a business insurance policy, which it purchased for $3,300 on July 1, 2017. The policy runs until June 30, 2018.

CWB owns various tools and equipment which it pools for purpose of calculating depreciation. In the past it has used straight-line depreciation over a twelve-year period with no scrap or salvage value for these assets. However, with technology changing rapidly, CWB questions whether it will have to replace the equipment earlier.

On April 7 received its utilities bill for the first quarter of 2018 - $800.

The tax rate is 20%.

Cherry & White Bike Company

Post-Closing Trial Balance

12/31/2017

HOW WOULD YOU RECORD THESE ENTRYS????

This case continues following the new project of the WePPROMOTE Company, that you and your partner own. WePROMOTE is in the promotional materials business. The project being considered is to manufacture a unique case for smartphones. The case is very durable, attractive and fits virtually all models of smartphone. It will also have the logo of your client, a prominent, local company and is planned to be given away at public relations events by your client.

As we know from prior cases involving this company, more and more details of the project become apparent and with more precision and certainty.

The following are the final values to the data that you have been estimating up to this point:

- You can borrow funds from your bank at 3%.

- The cost to install the needed equipment will be $105,000 and this cost is incurred prior to any cash is received by the project.

- The gross revenues from the project will be $25,000 for year 1, then $27,000 for years 2 and 3. Year 4 will be $28,000 and year 5 (the last year of the project) will be $23,000.

- The expected annual cash outflows (current project costs) are estimated at being $13,000 for the first year, then $12,000 for years 2, 3, and 4. The final year costs will be $10,000.

- Your tax rate is 30% and you plan to depreciate the equipment on a straight-line basis for the life of the equipment.

- After 5 years the equipment will stop working and will have a residual (salvage) value of $5,000).

- The discount rate you are assuming is now 7%.

The Tasks:

1. Perform the final NPV calculations and provide a narrative of how you calculated the computations and why.

2. Then provide a summary conclusion on whether you should continue to pursue this business opportunity.

This case continues following the new project of the WePPROMOTE Company, that you and your partner own. WePROMOTE is in the promotional materials business. The project being considered is to manufacture a unique case for smartphones. The case is very durable, attractive and fits virtually all models of smartphone. It will also have the logo of your client, a prominent, local company and is planned to be given away at public relations events by your client.

As we know from prior cases involving this company, more and more details of the project become apparent and with more precision and certainty.

The following are the final values to the data that you have been estimating up to this point:

- You can borrow funds from your bank at 3%.

- The cost to install the needed equipment will be $105,000 and this cost is incurred prior to any cash is received by the project.

- The gross revenues from the project will be $25,000 for year 1, then $27,000 for years 2 and 3. Year 4 will be $28,000 and year 5 (the last year of the project) will be $23,000.

- The expected annual cash outflows (current project costs) are estimated at being $13,000 for the first year, then $12,000 for years 2, 3, and 4. The final year costs will be $10,000.

- Your tax rate is 30% and you plan to depreciate the equipment on a straight-line basis for the life of the equipment.

- After 5 years the equipment will stop working and will have a residual (salvage) value of $5,000).

- The discount rate you are assuming is now 7%.

The Tasks:

1. Perform the final NPV calculations and provide a narrative of how you calculated the computations and why.

2. Then provide a summary conclusion on whether you should continue to pursue this business opportunity.

(T / F) If ending inventory is understated, cost of goods sold is understated, resulting in an overstatement of gross margin, net income, and retained earnings.

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True

False

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(T / F) When ending inventory is misstated in the current year, companies carry that misstatement forward into the next year.

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False

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(T / F) Specific identification attaches actual cost of each unit of product to units in ending inventory and cost of goods sold.

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False

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(T / F) FIFO assumes that the costs of the first goods purchased are those charged to cost of goods sold when goods are sold. During periods of rising prices, FIFO creates higher net income since the costs charged to cost of goods sold are lower.

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False

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(T / F) LIFO (last-in, first-out): Ending inventory consists of the oldest costs.

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False

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(T / F) Perpetual inventory procedure requires an entry to Merchandise Inventory whenever goods are purchased, returned, sold, or otherwise adjusted, so that inventory records reflect actual units on hand at all times. Thus, an entry is required to record cost of goods sold for each sale.

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False

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(T / F) Inventory turnover ratio = (Cost of goods sold) / (Average inventory )

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(T / F) Inventory turnover measures the efficiency of the firm in managing and selling inventory. It gauges the liquidity of the firm's inventory.

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(T / F) Overstated ending inventory results in an overstatement of cost of goods sold and an understatement of gross margin and net income.

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(T / F) In a period of rising prices, FIFO results in the lowest cost of goods sold.

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Nordway Corporation acquired 90 percent of Olman Company’s voting shares of stock in 20X1. During 20X4, Nordway purchased 51,000 Playday doghouses for $32 each and sold 36,000 of them to Olman for $40 each. Olman sold 29,000 of the doghouses to retail establishments prior to December 31, 20X4, for $55 each. Both companies use perpetual inventory systems.

Nordway Corporation acquired 90 percent of Olman Company’s voting shares of stock in 20X1. During 20X4, Nordway purchased 57,000 Playday doghouses for $26 each and sold 42,000 of them to Olman for $32 each. Olman sold all of the doghouses to retail establishments prior to December 31, 20X4, for $47 each. Both companies use perpetual inventory systems.

Required: a.Prepare the journal entries Nordway recorded for the purchase of inventory and resale to Olman Company in 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

-Record the purchase of inventory on account.

-Record the sales of the Playday doghouses.

-Record the cost of goods sold.

b.Prepare the journal entries Olman recorded for the purchase of inventory and resale to retail establishments in 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

-Record the purchase of inventory on account.

-Record the sales of the Playday doghouses.

-Record the cost of goods sold.

c.Prepare the worksheet consolidation entry(ies) needed in preparing consolidated financial statements for 20X4 to remove all effects of the intercompany sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

-Record the consolidation entry.

Planet Corporation acquired 90 percent of Saturn Company’s voting shares of stock in 20X1. During 20X4, Planet purchased 40,000 Playday doghouses for $24 each and sold 25,000 of them to Saturn for $30 each. Saturn sold 18,000 of the doghouses to retail establishments prior to December 31, 20X4, for $45 each. Both companies use perpetual inventory systems.

Required:
a. Prepare all journal entries Planet recorded for the purchase of inventory and resale to Saturn Company in 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record the purchase of inventory.

Record the sales of the Playday doghouses.

Record the cost of goods sold.

b. Prepare the journal entries Saturn recorded for the purchase of inventory and resale to retail establishments in 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record the purchase of inventory.

Record the sales of the Playday doghouses.

Record the cost of goods sold.

c. Prepare the worksheet consolidation entry(ies) needed in preparing consolidated financial statements for 20X4 to remove the effects of the intercompany sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record the consolidation entry.