Orange Co. began operations on January 1, 2020. Financial statements for 2020 and 2021 contained the following errors:
Dec. 31, 2020 Dec. 31, 2021
Ending inventory $198,000 overstated $219,000 understated
Depreciation expense 126,000 overstated —
In addition, on December 31, 2021 fully depreciated equipment was sold for $44,000, but the sale was not recorded until 2022. No corrections have been made for any of the errors. Ignore income tax considerations.
The total effect of the errors on the balance of Orange's retained earnings at December 31, 2021 is understated by _______
In: Accounting
3.
EASTDALE INDUSTRIES INC.
STATEMENT OF INCOME
FOR THE YEAR ENDED MARCH 31, 2020
2020 2019
Sales revenue$1,095,000$750,000
Cost of goods sold 635,100 435,000
Gross profit 459,900 315,000
Expenses
Depreciation 29,520 24,000
Office supplies 2,200 1,600
Salaries and benefits 112,850 102,500
Rent 18,000 18,000
Utilities 27,192 20,200
189,762166,300
Operating income 270,138 148,700
Income tax expense 59,430 32,714
Net income$ 210,708$ 115,986
Additional information:
Unit sales for 2020 and 2019 were 8,760 and 6,000 units, respectively.
Required:
5a) For each cost in the above income statement, identify whether the cost is fixed, variable and mixed with respect to sales volume, and explain how this was determined.
1b) Determine a reasonable cost driver for income tax expense. That is, what is the nature of the activity that would cause income tax expense to vary?
2c) Select one mixed cost and prepare a scattergraph. From the scattergraph, use the visual fit method to determine the total fixed cost and variable cost per unit.
6d) For the remaining mixed costs, determine the fixed and variable component of each cost using the high-low method. Why is the preparation of a scattergraph of no benefit given the information you have available?
2e) Based on your knowledge of depreciation methods from financial accounting, give a reasonable explanation of the cost structure of depreciation expense that you have identified earlier.
7f) Using a contribution format, prepare a budgeted income statement for 2021 if 9,600 units are expected to be sold. Stop at the calculation of operating income, so no income tax expense need be calculated.
In: Accounting
Adcock Corp. had $500,000 net income in 2020. For all of 2020, there were 200,000 shares of Adcock’s common stock outstanding. There were also 30,000 options outstanding all year. Each option allowed the holder to buy one share of common stock at $40 a share. The market price of the common stock averaged $50 during 2020. The tax rate is 30%.
During all of 2020, there were 40,000 shares of convertible preferred stock outstanding. The preferred is $100 par, pays $3.50 a year dividend, and is convertible into 3 shares of common stock. Finally, Adcock had $2,000,000 of 7% convertible bonds (issued at face value) outstanding for all of 2020. Each $1,000 bond is convertible into 30 shares of common stock.
Required:
(1) Calculate Adcock’s basic earnings per share for 2020.
(2) Calculate the incremental per share effect of each potentially dilutive security. Note that you are not to rank the results from smallest to largest earnings effect per share nor are you to recompute earnings per share for each of these potentially dilutive securities to determine if they are dilutive or anti-dilutive.
In: Accounting
In 2020, Pina Ltd., which follows IFRS, reported accounting
income of $1,178,000 and the 2020 tax rate was 20%. Pina had two
timing differences for tax purposes:
CCA on the company’s tax return was $476,500. Depreciation expense
on the financial statements was $283,000. These amounts relate to
assets that were acquired on January 1, 2020, for $1,906,000.
Accrued warranty expense for financial statement purposes was
$138,100 (accrued expenses are not deductible for tax purposes).
This is the first year Pina offers warranties.
Both of these timing differences will fully reverse over the next
four years, as follows:
| Year | Depreciation Difference |
Warranty Expense |
Rate | |||
| 2021 | $67,500 | $19,100 | 20% | |||
| 2022 | 51,500 | 28,600 | 20% | |||
| 2023 | 40,500 | 40,000 | 18% | |||
| 2024 | 34,000 | 50,400 | 18% | |||
| $193,500 | $138,100 |
Prepare the journal entries to record income taxes for 2020
In 2021 the government announced a further tax rate reduction will be effective for the 2024 taxation year. The new rate will be 15%. Prepare the journal entry to adjust deferred taxes for the reduced rate.
In: Accounting
The following information is related to Skysong Company for
2020.
| Retained earnings balance, January 1, 2020 | $1,372,000 | |
| Sales Revenue | 35,000,000 | |
| Cost of goods sold | 22,400,000 | |
| Interest revenue | 98,000 | |
| Selling and administrative expenses | 6,580,000 | |
| Write-off of goodwill | 1,148,000 | |
| Income taxes for 2020 | 1,741,600 | |
| Gain on the sale of investments | 154,000 | |
| Loss due to flood damage | 546,000 | |
| Loss on the disposition of the wholesale division (net of tax) | 616,000 | |
| Loss on operations of the wholesale division (net of tax) | 126,000 | |
| Dividends declared on common stock | 350,000 | |
| Dividends declared on preferred stock | 112,000 |
Skysong Company decided to discontinue its entire wholesale
operations (considered a discontinued operation) and to retain its
manufacturing operations. On September 15, Skysong sold the
wholesale operations to Rogers Company. During 2020, there were
500,000 shares of common stock outstanding all year.
Prepare a multi step income statement:
In: Accounting
Problem 6-1B Inventory ownership—perpetual LO1
On November 30, 2020, York + Robin Shoes (Y+R) performed the annual
inventory count and determined the
year-end ending inventory value to be $49,222. It is now
December 3, 2020, and you have been asked to double-
check the inventory listing. Y+R uses a perpetual inventory system.
Note: Only relevant items are shown on
the inventory listing.
York + Robin Shoes
Inventory Listing
Year-Ended November 30, 2020
#
Inventory
Number Inventory Description Quantity (units) Unit Cost ($) Total
Value ($)
1 A20 Men’s brown dress shoes 74 $50 $ 3,700
2 B30 Women’s black boots 50 30 1,500
. . . . . .
Total Inventory $49,222
CHAPTER 6 Inventory Costing and Valuation
456
The following situations have been brought to your attention:
a. On November 28, 2020, Y+R received a customer order for men’s
sneakers (Item # D50) with a sale price
of $1,000 and cost of $600, FOB shipping. The order was shipped on
November 30, 2020. Y+R did not
include this inventory.
b. On December 2, 2021, Y+R received a shipment of $1,500 women’s
black boots (Item # B30). The inventory
was purchased November 22, 2020, FOB destination from Global
Threads. This inventory was included in
Y+R’s inventory count and inventory listing.
c. Women’s sandals (Item # C40) were purchased and shipped from
International Sole Co. on November 30,
2020 for $2,300, FOB shipping. The shipment arrived December 5,
2020 and the appropriate party paid for
the shipping charges of $230. Additional costs were $161 for import
duties and $86 for insurance during
shipment.
d. On November 30, 2020, Y+R shipped women’s flip flops (Item #E60)
to a customer for $2,520, FOB
destination. The inventory cost $1,800 and the customer received
the goods on December 3, 2020. Y+R has
not included this inventory.
e. Y+R had been holding $3,700 of men’s brown dress shoes (Item
#A20) on consignment for designer Blue
Co. as at November 30, 2020. This inventory was included in Y+R’s
inventory count and inventory listing.
Required
1. In situations (a) to (e), determine whether each of the
following should be included or excluded in
inventory as at November 30, 2020 and explain why. If the inventory
should be included, determine
the inventory cost.
2. Determine the correct ending inventory value at November 30,
2020. Starting with the unadjusted inven-
tory value of $49,222, add or subtract any errors based on your
analysis in Part 1. Assume all items that are
not shown in the inventory listing or discussed in situations (a) to (e) are recorded correctly.
In: Accounting
Comprehensive Accounting Cycle Review
15.ACR Quigley Corporation's trial balance at December 31, 2020, is presented below. All 2020 transactions have been recorded except for the items described below.
| Debit | Credit | |
|---|---|---|
| Cash | $ 25,500 | |
| Accounts Receivable | 51,000 | |
| Inventory | 22,700 | |
| Land | 65,000 | |
| Buildings | 95,000 | |
| Equipment | 40,000 | |
| Allowance for Doubtful Accounts | $ 450 | |
| Accumulated Depreciation—Buildings | 30,000 | |
| Accumulated Depreciation—Equipment | 14,400 | |
| Accounts Payable | 19,300 | |
| Interest Payable | -0- | |
| Dividends Payable | -0- | |
| Unearned Rent Revenue | 8,000 | |
| Bonds Payable (10%) | 50,000 | |
| Common Stock ($10 par) | 30,000 | |
| Paid-in Capital in Excess of Par—Common Stock | 6,000 | |
| Preferred Stock ($20 par) | -0- | |
| Paid-in Capital in Excess of Par—Preferred Stock | -0- | |
| Retained Earnings | 75,050 | |
| Treasury Stock | -0- | |
| Cash Dividends | -0- | |
| Sales Revenue | 570,000 | |
| Rent Revenue | -0- | |
| Bad Debt Expense | -0- | |
| Interest Expense | -0- | |
| Cost of Goods Sold | 400,000 | |
| Depreciation Expense | -0- | |
| Other Operating Expenses | 39,000 | |
| Salaries and Wages Expense | 65,000 | |
| Total | $803,200 | $803,200 |
Unrecorded transactions and adjustments:
Instructions
(Ignore income taxes.)
(a)
Prepare journal entries for the transactions and adjustment listed above.
(b)
Prepare an updated December 31, 2020, trial balance, reflecting the journal entries in (a).
Total $871,200
(c)
Prepare a multiple-step income statement for the year ending December 31, 2020.
(d)
Prepare a retained earnings statement for the year ending December 31, 2020.
(e)
Prepare a classified balance sheet as of December 31, 2020.
Total assets $273,400
In: Accounting
List and describe major systematic factors that had major influence over the Australian stock exchange from March 2020 to May 2020. These influences can be good or bad.
In: Finance
Purple Company records $200,000 in net income for 2019 before deducting any compensation or other payment to its sole owner, Kirsten. Kirsten is single and she claims the $12,200 standard deduction. Purple Company is Kirsten's only source of income.
Ignoring any employment tax considerations, compute Kirsten's after-tax income for each of the following situations.
Click here to access the 2019 individual tax rate schedule to use for this problem. Assume the corporate tax rate is 21%.
Purple is a C corporation and pays out all of its after-tax income as a dividend to Kirsten.
Note: Individual taxpayers received preferential treatment regarding the taxation of qualified dividends (0%,15%,20%). For single taxpayers, the 0 percent rate applies to the first $38,600 of taxable income.
Purple Corporation's after-tax income is $ and Kristen's after tax income is $
Purple is a C corporation and pays Kirsten a salary of $158,000. Kirsten's after-tax income is
In: Finance
Discounted Cash Flow Valuation
You and your spouse begin immediately saving for retirement and the dreamy “ever after” that you need to fund. At this point, your “ever after” fund has a balance of $0. You begin depositing $300 each month, starting one month from now, for the next 30 years. Your spouse begins depositing $5,000 each year, starting one year from now, into the same account for the next 30 years. The joint account earns 9 percent APR, compounded monthly. How much will you two have in your joint account 30 years from now, immediately after your last deposits?
Part B Your “ever after” is expected to be funded by monthly withdrawals, starting one month after your last deposits, and it is expected to last for 35 years. How much will you two (collectively) have to happily spend each month, assuming your accounts continue to earn the same rate as before?
In: Finance