Question 1

Lady Gaga Inc. is a company that manufactures and sells flashy women’s apparel. Recently, the company’s budget committee completed preliminary work on its master budget. Based on management's sales forecast, required production for the next three months is budged to be as follows:

Every unit sold is produced using 50 centimeters (0.5 meters) of fabric, which is purchased in one meter-length rolls at an average price of $50 per meter. Management wants to maintain an ending inventory of fabric equal to 80% of next month’s expected production requirements (of fabric). These standards remain unchanged from the previous year.

Required: Prepare a direct materials budget for the three months ending July 31, excluding quarterly totals.

Question 2

Sherry's Shoes, Inc. has estimated the following sales in units for each of the next three quarters:

Management at Sherry's Shoes, Inc. wished to maintain an inventory of finished goods at the end of each quarter equal to 25% of the next quarter's expected sales. The finished goods on hand at the beginning of the budget period conformed to management's standard.

Required:

Prepare a production budget for the first two quarters of 2020, with total column.

On December 31, 2019, Akron, Inc., purchased 5 percent of Zip Company's common shares on the open market in exchange for $17,100. On December 31, 2020, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $95,000.

During the next two years, the following information is available for Zip Company:

At December 31, 2020, Zip reports a net book value of $280,000. Akron attributed any excess of its 30 percent share of Zip's fair over book value to its share of Zip's franchise agreements. The franchise agreements had a remaining life of 10 years at December 31, 2020.

1. Assume Akron applies the equity method to its Investment in Zip account:

1. What amount of equity income should Akron report for 2021?
2. On Akron’s December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?

1. Assume Akron uses fair-value accounting for its Investment in Zip account:

1. What amount of income from its investment in Zip should Akron report for 2021?
2. On Akron’s December 31, 2021, balance sheet, what amount is reported for the Investment in Zip account?

Sunland Company began operations on January 1, 2019, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2019 and, because there was no beginning inventory, its ending inventory for 2019 of $38,800 would have been the same under either the conventional retail system or the LIFO retail system. On December 31, 2020, the store management considers adopting the LIFO retail system and desires to know how December 31, 2020, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level. Cost Retail Inventory, Jan. 1, 2020 $38,800 $60,000 Markdowns (net) 13,100 Markups (net) 22,100 Purchases (net) 130,800 181,300 Sales (net) 167,500 Determine the cost of the 2020 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method. (Round ratios for computational purposes to 2 decimal place, e.g. 78.72% and final answers to 0 decimal places, e.g. 28,987.) (a) Ending inventory using conventional retail method $enter a dollar amount rounded to 0 decimal places (b) Ending inventory LIFO retail method $enter a dollar amount rounded to 0 decimal places

Grouper Company began operations on January 1, 2019, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2019 and, because there was no beginning inventory, its ending inventory for 2019 of $37,700 would have been the same under either the conventional retail system or the LIFO retail system.

On December 31, 2020, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2020, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level.

Determine the cost of the 2020 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method. (Round ratios for computational purposes to 2 decimal place, e.g. 78.72% and final answers to 0 decimal places, e.g. 28,987.)

The December 31, 2019 statement of financial position of Howson Limited (Howson) showed Trade Accounts Receivable of $450,000 and a credit balance in Allowance for Doubtful Accounts of $45,000. During 2020, the following transactions occurred: Total service revenue of 2,000,000 was recognized of which 75% was billed on account; collections from customers totaled $1,300,000; accounts written off totaled $37,000; and previously written off accounts of $4,000 were collected.

Required

a) Journalize the 2020 transactions. (6 marks)

b) If the company uses the percentage of receivables basis to estimate bad debts expense and determines that uncollectible accounts are expected to be 5% of trade accounts receivable, prepare the adjusting entry at December 31, 2020?
   c) Management of Howson wants to show the highest possible net income for the year ended December 31, 2020. The president states, “one of my competitors told me that using % of credit sales method in determining our bad debt expense would increase the Company’s net income. Our industry average % of 2.4% is very reflective of our bad debt experience.”

    Required:

     The president of Howson has two questions she would like addressed.

1. First, would you recommend Howson adopt this method. (2 marks)

2. Secondly, regardless of your recommendation in (i), what amount would the net book value of the Accounts Receivable show on Howson’s Balance Sheet if the method were adopted?

The Trial Balance of Nuqa Ltd is provided below

2020 2019

Bank Overdraft    60,000

Cash 29,000 0

Sales 1,200,000 1,150,000

Cost of Goods Sold 800,000 714,000

Insurance Expense 30,000 27,000

Wages Expense 120,000 121,000

Doubtful Debts Expense 5,000 4,000

Other Expenses 65,000 78,000

Accounts Payable 70,000 75,000

Accounts Receivable 90,000 88,000

Allowance for Doubtful Debts 10,000 11,000

Inventory 80,000 82,000

Accrued Wages 12,000 10,000

Prepaid Insurance 8,000 6,000

Plant & Equipment 550,000 600,000

Accumulated Dep. on Plant & Equip. 125,000 110,000

Loan Payable 150,000 130,000

Share Capital 200,000 200,000

Retained Earnings 10,000 0

Accumulated Losses 0 26,000

Additional Information

Depreciation was $28,000 in 2019 and $25,000 in 2020. Loss on disposal in 2020 was $15,000.

i)Calculate receipts from customers

ii)Calculate payments to suppliers

iii)Calculate payments to employees

iv)Calculate net investing cash flows

v)Calculate financing cash inflows

vi)Calculate net profit for 2020

vii)Reconcile net profit with operating cash flows, using the direct method.

viii)Use your answer for (vii) to suggest two ways in which the company could improve its operating cash flows by managing current assets and liabilities.

35) The following aging information pertains to Jacobsen Co.'s accounts receivable at December 31, 2021:

During 2021, Jacobsen wrote off $18,000 in receivables and recovered $6,000 that had been written off in prior years. Jacobsen's December 31, 2020, allowance for uncollectible accounts was $40,000. Using the balance sheet approach, what amount of allowance for uncollectible accounts should Jacobsen report at December 31, 2021?

A) $55,400.

B) $28,000.

C) $49,400.

D) $31,400.

Problem 1

Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,800,000. The project was begun in 2020 and completed in 2021. Cost and other data are presented below:

                                                                          2020                           2021

Costs incurred during the year                    $ 450,000                  $1,100,000

Estimated costs to complete                       1,050,000                                  0

Billings during the year                                400,000                    1,400,000

Cash collections during the year                   300,000                    1,500,000

Assume that Beavis recognizes revenue on this contract over time according to percentage of completion.

Required:

1. Prepare all journal entries to record costs, billings, collections, and profit recognition for

    2020

2. Prepare all journal entries to record costs, billings, collections, profit recognition and     

     completion of the project for 2021

Sage Company began operations on January 1, 2019, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2019 and, because there was no beginning inventory, its ending inventory for 2019 of $38,000 would have been the same under either the conventional retail system or the LIFO retail system.

On December 31, 2020, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2020, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level.

Determine the cost of the 2020 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method. (Round ratios for computational purposes to 2 decimal place, e.g. 78.72% and final answers to 0 decimal places, e.g. 28,987.)