Transaction Analysis and Financial Statements

Blue Jay Delivery Service is incorporated on January 2 and enters into the following transactions during its first month of operations:

Required:

1. Complete the below table to summarize the preceding transactions as they affect the accounting equation. Ignore depreciation expense and interest expense. If an account is unaffected by a transaction, enter "0". Use the minus sign to indicate decreases.

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After every transaction check that equation is still in balance. The equation equates to a weight balance that requires both sides to be balanced. An increase on one side either requires an equal decrease on same side or equal increase on other side. The same process for decreases. Increases/decreases are actions affecting an account balance. All transactions involve an exchange.
January 2: Record receipt of cash (increase to asset) in exchange for capital stock (increase to capital stock).
January 3: Record land and warehouse purchases (increase to assets) with payment of cash (decrease to asset).
January 4: Record receipt of cash (increase to asset) with notes payable (increase to liability).
January 6: Record purchase of delivery trucks (increase to asset) with payment of cash (decrease to asset).
January 31: Record service revenue earned (increase to retained earnings) with amount due on account receivable (increase to asset). Revenue is an indirect increase to Retained Earnings.
January 31: Record receipt of cash (increase to asset) with payment on account receivable (decrease to asset).
January 31: Record gas and oil expense (decrease to retained earnings) with amount due on account payable (increase to liability).

2. Prepare an income statement for the month of January.

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1) Revenue – expenses = net income.
2) Revenues represents all types of income earned.
3) Expenses represent all of the various costs necessary to generate revenue.

3. Prepare a classified balance sheet at January 31.

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1, Which of the following statements is true?

A) Under variable costing, direct materials and direct labor are expensed as period  

      expenses

B) Under variable costing, fixed manufacturing overhead is expensed as period expenses.

C) Fixed manufacturing overhead costs are treated the same under both absorption costing and variable costing.

D) Reported income under absorption costing is not affected by production level changes.

E) Under absorption costing, fixed manufacturing overhead is expensed as period

      expenses    

2.         Mentor Corp. has provided the following information for the current year:

Calculate the unit product cost using absorption costing.

A) $245

B) $275

C) $55

D) $145

3.         Mentor Corp. has provided the following information for the current year:

Calculate the unit product cost using variable costing.

A) $245

B) $275

C) $55

D) $145  

4.         Under absorption costing, a company had the following unit costs when 8,000 units were

             produced.        

Compute the total production cost per unit under variable costing if 25,000 units had been produced.

A) $31.75

B) $27.25

C) $26.25

D) $24.25

E) $17.50

5.         When evaluating a special order, management should:

A) Only accept the order if the incremental revenue exceeds all product costs.

B) Only accept the order if the incremental revenue exceeds fixed product costs.

C) Only accept the order if the incremental revenue exceeds total variable product costs.

D) Only accept the order if the incremental revenue exceeds full absorption product costs.

E) Only accept the order if the incremental revenue exceeds regular sales revenue.

6.       Which of the following best describes costs assigned to the product under the absorption

             costing method?

Direct labor (DL)

Direct materials (DM)

Variable selling and administrative (VSA)

Variable manufacturing overhead (VOH)

Fixed selling and administrative (FSA)

Fixed manufacturing overhead (FOH)

A) DL, DM, VSA, and VOH.

B) DL, DM, and VOH.

C) DL, DM, VOH, and FOH.

D) DL and DM.

E) DL, DM, FSA, and FOH.

7.       Which of the following best describes costs assigned to the product under the variable

             costing method?

Direct labor (DL)

Direct materials (DM)

Variable selling and administrative (VSA)

Variable manufacturing overhead (VOH)

Fixed selling and administrative (FSA)

Fixed manufacturing overhead (FOH)

A) DL, DM, VSA, and VOH.

B) DL, DM, and VOH.

C) DL, DM, VOH, and FOH.

D) DL and DM.

E) DL, DM, FSA, and FOH.

12.       Howley Company has the following information for April:

                        Sales                            $912,000

                        VC of goods sold           474,000

                        FC – mfg.                          82,000

                        VC – selling & adm.       238,000

                        FC – selling & adm.          54,700

     Determine:  

1. Operating Income for Howley during the month of April.

1-REVENUE/SALES- Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend. (Revenues were 20x6: $11,814 20x5: $9,500, 20x4: $7,800) (Industry sales have been increasing by double digits for the last five years, competitor sales increases have ranges from 10-30% increases year over year for the last 5 years.) Using a reasonableness analytic estimate expected revenue for 2018 using the historical data provided.

2.Based on her knowledge of economic conditions, she is aware that the effective interest rate on the company's Long-term debt, less current maturity for 20X8 was approximately 11 percent. She is aware that the company pays little to no interest on the current portion of the long-term debt. Long-term debt, less current maturity is the company’s only debt, and source of interest expense. Using a reasonableness analytic estimate expected interest expense for 20X8. (Show your calculation, your answer, and if any differences noted are material or not, conclude whether you believe this account is misstated or appears reasonable.)

Change in Accounting Method

Instructions

Delta Oil Company uses the successful-efforts method to account for oil exploration costs. Delta started business in 2014 and prepared the following income statements:

The company chose to change to the full-cost method at the beginning of 2016. Under the full-cost method, Delta capitalizes all exploration costs of the Oil and Gas Properties asset account on its balance sheet. It determines the exploration and amortization expense amounts under the full-cost method to be as follows:

In addition, Delta reported revenue of $9,000,000 and other expenses of $4,200,000 in 2016. With the 2016 financial statements, the company issues comparative statements for the previous 2 years.

Required:

Chart of Accounts

Amount Descriptions

General Journal

Prepare the journal entry to reflect the change on January 1, 2016

PAGE 1

GENERAL JOURNAL

Income Statements

Prepare the comparative income statements for 2016, 2015, and 2014. Notes to the financial statements are not necessary. Additional Instructions

Retained Earnings

Prepare the comparative statements of retained earnings for 2016, 2015, and 2014. Notes to the financial statements are not necessary. Additional Instructions

Next Level

Discuss the advantages and disadvantages of accounting for a change in this manner.

Advantages and disadvantages of the retrospective adjustment method include:

Tran Technologies licenses its functional intellectual property to Lyon Industries. Terms of the arrangement require Lyon to pay Tran $570,000 on April 1, 2018, when Lyon first obtains access to Tran’s intellectual property, and then to pay Tran a royalty of 4% of future sales of products that utilize that intellectual property. Tran anticipates receiving sales-based royalties of $1,070,000 during 2018 and $1,570,000/year for the years 2019–2021. Assume Tran accounts for the Lyon license as a right of use, because Tran’s actions subsequent to April 1, 2018, will affect the benefits that Lyon receives from access to Tran’s intellectual property.

Required:

1. Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Identify the specific citation for accounting for variable consideration arising from sales-based royalties on licenses of intellectual property, and consider the relevant GAAP. When can Tran recognize revenue from sales-based royalties associated with the Lyon license?
2. What journal entry would Tran record on April 1, 2018, when it receives the $570,000 payment from Lyon?
3. Assume on December 31, 2018, Tran receives $1,070,000 for all sales-based royalties earned from Lyon in 2018. What journal entry would Tran record on December 31, 2018, to recognize any revenue that should be recognized in 2018 with respect to the Lyon license that it has not already recognized?
4. Assume Tran accounts for the Lyon license as a five-year right to access Tran’s symbolic intellectual property from April 1, 2018, through March 31, 2023. Tran expects that its ongoing marketing efforts will affect the value of the license to Lyon during the five-year license period. Repeat requirements 2 and 3.

Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Identify the specific citation for accounting for variable consideration arising from sales-based royalties on licenses of intellectual property, and consider the relevant GAAP. When can Tran recognize revenue from salesbased royalties associated with the Lyon license?

What journal entry would Tran record on April 1, 2018, when it receives the $570,000 payment from Lyon? Assume on December 31, 2018, Tran receives $1,070,000 for all sales-based royalties earned from Lyon in 2018. What journal entry would Tran record on December 31, 2018, to recognize any revenue that should be recognized in 2018 with respect to the Lyon license that it has not already recognized? Assume Tran accounts for the Lyon license as a five-year right to access Tran’s symbolic intellectual property from April 1, 2018, through March 31, 2021. Tran expects that its ongoing marketing efforts will affect the value of the license to Lyon during the five-year license period. Repeat requirements 2 and 3. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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Journal entry worksheet

Note: Enter debits before credits.

Note: Enter debits before credits.

Record the entry from Tran to recognize any revenue that should be recognized in 2018 with respect to the Lyon license that it has not already recognized.

Note: Enter debits before credits.

Record the entry for Tran to recognize any revenue that should be recognized in 2018 with respect to the Lyon license that it has not already recognized under the new assumption.

hello, I need to fill in the blank AS IT IS BELOW!

Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $25 per unit. Lehighton uses an actual costing system, which means that the actual costs of direct material, direct labor, and manufacturing overhead are entered into work-in-process inventory. The actual application rate for manufacturing overhead is computed each year; actual manufacturing overhead is divided by actual production (in units) to compute the application rate. Information for Lehighton’s first two years of operation is as follows:

Selected information from Lehighton’s year-end balance sheets for its first two years of operation is as follows:

Required:

Reconcile Lehighton’s operating income reported under absorption and variable costing, during each year, by comparing the following two amounts on each income statement:

Cost of goods sold

Fixed cost (expensed as a period expense)

What was Lehighton’s total operating income across both years under absorption costing and under variable costing?

What was the total sales revenue across both years under absorption costing and under variable costing?

What was the total of all costs expensed on the operating income statements across both years under absorption costing and under variable costing?

Subtract the total costs expensed across both years [requirement (4)] from the total sales revenue across both years [requirement (3)]: (a) under absorption costing and (b) under variable costing.

Considering the results obtained in requirements 1-5 above, select which of the following statements (is) are true by selecting an "X".

1)

Reconcile Lehighton’s operating income reported under absorption and variable costing, during each year, by comparing the following two amounts on each income statement:

• Cost of goods sold
• Fixed cost (expensed as a period expense)

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2)

What was Lehighton’s total operating income across both years under absorption costing and under variable costing?

3)

What was the total sales revenue across both years under absorption costing and under variable costing?

4)

What was the total of all costs expensed on the operating income statements across both years under absorption costing and under variable costing?

5)

Subtract the total costs expensed across both years [requirement (4)] from the total sales revenue across both years [requirement (3)]: (a) under absorption costing and (b) under variable costing.

6)

Considering the results obtained in requirements 1-5 above, select which of the following statements (is) are true by selecting an "X".

The North Central Water Company has finalized its financial statements for the 2019 financial year. The Company's board of directors has asked you, their cost accountant, to look at the financial results and to compare the financial performance for the 2019 fiscal year to the results of the 2018 financial year. The board would also like you to project the revenues and expenses for the 2020 financial year based on several key assumptions. They have asked you to submit an excel file containing the financial results and budget projections as well as a one page memorandum of your findings.

Financial Results:

Total Number of Customers       26,000 25,000

2019    % of Total Revenues   2018    % of Total Revenues

Revenues:

Water Sales $1,162,000 ? $1,200,000 ?

Late Fees 87,000 ? 68,000 ?

Fire Hydrant Fees    114,500 ? 122,000 ?

  Total Revenues $1,363,500 100% $1,390,000 100%

Expenses:

Cost of Water Sold $512,000 ? $278,000 ?

Payroll Expense 608,000 ? 450,000 ?

Overhead Expense 292,050 ?    200,000 ?

Miscellaneous Expenses 64,075. ? 78,000    ?

   Total Expenses $1,476,125 ? $1,006,000    ?

Net Income (Loss) <$112,625> ?    $ 384,000 ?

I. Excel Analysis (Please submit your answers with the excel file provided for you in Ilearn entitled "North Central Financial Results- Student Copy".

Based on the financial results provided above, complete the excel spreadsheet file provided to you and submit your file in Ilearn. Please include include your name in the filename.

.

Required:

1. Calculate each revenue and expense item as a percentage of total revenues in 2019 and 2018 (show percentages out to TWO decimal places for all revenues and expenses, but round total revenue's percentage to ZERO decimal places- see examples in spreadsheet).

2. Calculate the water sales per customer for 2019 and 2018 (show number out to TWO decimal places- see example in spreadsheet).

3. Calculate the company's budgeted financial performance for 2020 based on the assumptions listed below for each revenue and expense item. Then calculate each item as a percentage of total revenues just like you did for 2019 and 2018. Then calculate the water sales per customer for 2020 just as you did for 2019 and 2018- see examples in spreadsheet.

4. Finally, calculate the differences in each revenue and expense item between 2020 and 2019, and 2019 and 2018- see example in spreadsheet. This will provide you with some insight about the year-to-year changes and help you with your business memo which is the second part of this project.

You must use formulas in the excel spreadsheet rather typing-in calculated numbers to get

full credit. You will also run into rounding errors unless you use formulas. Some formulas

and calculated numbers have already been included in the spreadsheet to help you. YOU

SHOULD HAVE AN ANSWER WHEREVER YOU SEE A QUESTION MARK (?)

ASSUMPTIONS:

Assume that the water company expects that in 2020:

a. The number of customers will increase by 5%.

b. Water sales will increase by 4% and late fees will increase by 1% due to increased customer demand.

c. Hydrant fees will decrease by 1% because several older hydrants will be taken out of service.

d. The cost of water sales will increase by 8% because of higher chemical costs.

e. Payroll expenses will increase by 5.5% due to wage increases and higher medical

insurance expenses.

f. Overhead expense will decrease by 4% because of efforts to reduce costs.

g. Miscellaneous expenses are expected to double because of the purchase of building supplies in anticipation of a major waterline project in 2020.

Here are some check figures to help you out:

2020 Total Revenue=1,409,705

2020 Total Expense=1,602,918

2020 Water Sales per customer= $44.27

Total Income<loss> 2020 vs 2019= <$80,588>

Total Income<loss> 2019 vs 2018=<$496,625>

Total Income <loss> as a percentage of total revenue in 2020=-13.71% Total Income <loss> as a percentage of total revenue in 2019=-8.26%

Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $25 per unit. Lehighton uses an actual costing system, which means that the actual costs of direct material, direct labor, and manufacturing overhead are entered into work-in-process inventory. The actual application rate for manufacturing overhead is computed each year; actual manufacturing overhead is divided by actual production (in units) to compute the application rate. Information for Lehighton’s first two years of operation is as follows:

Selected information from Lehighton’s year-end balance sheets for its first two years of operation is as follows:

Required:

Reconcile Lehighton’s operating income reported under absorption and variable costing, during each year, by comparing the following two amounts on each income statement:

Cost of goods sold

Fixed cost (expensed as a period expense)

What was Lehighton’s total operating income across both years under absorption costing and under variable costing?

What was the total sales revenue across both years under absorption costing and under variable costing?

What was the total of all costs expensed on the operating income statements across both years under absorption costing and under variable costing?

Subtract the total costs expensed across both years [requirement (4)] from the total sales revenue across both years [requirement (3)]: (a) under absorption costing and (b) under variable costing.

Considering the results obtained in requirements 1-5 above, select which of the following statements (is) are true by selecting an "X".

1)

Reconcile Lehighton’s operating income reported under absorption and variable costing, during each year, by comparing the following two amounts on each income statement:

• Cost of goods sold
• Fixed cost (expensed as a period expense)

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2)

What was Lehighton’s total operating income across both years under absorption costing and under variable costing?

3)

What was the total sales revenue across both years under absorption costing and under variable costing?

4)

What was the total of all costs expensed on the operating income statements across both years under absorption costing and under variable costing?

5)

Subtract the total costs expensed across both years [requirement (4)] from the total sales revenue across both years [requirement (3)]: (a) under absorption costing and (b) under variable costing.

6)

Considering the results obtained in requirements 1-5 above, select which of the following statements (is) are true by selecting an "X".

As you know, we have been renting Building X for several years to the Smith Company for $30,000 per year. Their lease expires at the end of the year. Instead of renewing the lease, I have been thinking that we should use that part of our plant to manufacture a new product. The direct materials cost for the new product will total $80 per unit. To have a place to store finished units of the product, we will rent a small warehouse nearby. The rental cost will be $500 per month. In addition, we must rent equipment for use in producing the new product; the rental cost will be $4,000 per month. We will hire workers to manufacture the new product, with the direct labor cost amounting to $60 per unit. The space in Building X will continue to be depreciated on a straight-line basis, as in prior years. This depreciation is $8,000 per year. Advertising costs for the new product will total $50,000 per year. I am going to hire a supervisor to oversee production; her salary will be $3,500 per month. Electricity for operating the machines will be $1 per unit. The cost of shipping the new product to customers will be $9 per unit. To provide funds to purchase materials, meet payroll, and so forth, we will have to liquidate some temporary investments. These investments are presently yielding a return of about $3,000 per year. I would like to sell the new product for $200 per unit. The marketing department thinks that at that price we should be able to sell 4,000 units every year. Please review the costs below and let me know if you think the costs should be classified as a product cost, a period cost, or an opportunity cost (pick one). I also would like to know if the behavior of the product cost or period cost is fixed or variable. Opportunity costs should not be classified as fixed or variable. (Hint: There are two opportunity costs in this problem. They are the two items that are ‘revenue’ in the list of costs.) Name of Cost Variable or Fixed Cost Product Cost Period Cost Opportunity Cost Rental revenue (from Smith Co.) forgone, $30,000 per year Direct materials cost, $80 per unit Rental cost of warehouse, $500 per month Rental cost of equipment, $4,000 per month Direct labor cost, $60 per unit Depreciation of Building X, $8,000 per year Advertising cost, $50,000 per year Supervisor’s salary, $3,500 per month Electricity for machines, $1 per unit Shipping cost, $9 per unit Revenue earned on investments, $3,000 per year Based on the information above, do you think we should manufacture the new product or should we continue to rent to Smith Company? In the space below and on the next pages, please provide me with numbers to support your answer. Are there any costs that are not relevant in this decision? How many units do we need to sell in order to ‘break even?’ Option 1: Continue to rent to Smith Company Rental revenue from Smith _______________ Investment revenue _______________ Total revenue _______________ Expenses: ________________________ _______________ Net operating income _______________ Option 2: Manufacture the new product Henry Hawkins Industries Contribution Format Income Statement: New Product For the Year Total Per Unit Sales (4,000 units) $800,000 $200 Variable expenses: _____________________ _______________ ______ _____________________ _______________ ______ _____________________ _______________ ______ _____________________ _______________ ______ Total variable expenses _______________ ______ Contribution margin _______________ ______ Fixed expenses: _____________________ _______________ _____________________ _______________ _____________________ _______________ _____________________ _______________ _____________________ _______________ Total fixed expenses _______________ Net operating income _______________ Questions: 1. Do you recommend Option 1 or Option 2? 2. Which cost is not relevant to the decision? (Hint: which cost shows up in both options.) 3. How many units of the new product do we need to sell in order to ‘break-even?’ (Break-even is where the net operating income is zero.)

1. 4. Prepare a Budget that estimates direct labor hours and related costs needed to support budgeted production.direct labor cost budget for January.

   Birds of a Feather Inc. Direct Labor Cost Budget For the Month Ending January 31
   			Fabrication Department		Assembly Department	Total
   Hours required for production:
   	Birdhouse
   	Bird feeder
   	Total
   Hourly rate			$		$
   Total direct labor cost			$		$	$

   5. Prepare a Budget that estimates the cost for each item of factory overhead needed to support budgeted production.factory overhead cost budget for January.

   Birds of a Feather Inc. Factory Overhead Cost Budget For the Month Ending January 31
   	Indirect factory wages
   	Depreciation of plant and equipment
   	Power and light
   	Insurance and property tax
   	Total	$

   6. Prepare a cost of goods sold budget for January. Work in process at the beginning of January is estimated to be $29,000, and work in process at the end of January is estimated to be $35,400.

   Birds of a Feather Inc. Cost of Goods Sold Budget For the Month Ending January 31
   Direct materials inventory, January 1 Direct materials inventory, January 31 Direct materials purchases Factory Overhead Finished goods inventory, January 1 Finished goods inventory, January 31
   Direct materials inventory, January 1 Direct materials inventory, January 31 Direct materials purchases Factory Overhead Work in process inventory, January 1 Work in process inventory, January 31
   Direct materials:
   Direct materials inventory, January 1 Direct materials inventory, January 31 Finished goods inventory, January 1 Finished goods inventory, January 31 Work in process inventory, January 1 Work in process inventory, January 31
   Direct labor Direct materials purchases Factory overhead Finished goods inventory, January 31 Work in process inventory, January 1 Work in process inventory, January 31
   Cost of direct materials available for use
   Less: Direct materials inventory, January 1 Less: Direct materials inventory, January 31 Less: Finished goods inventory, January 1 Less: Finished goods inventory, January 31 Less: Work in process inventory, January 1 Less: Work in process inventory, January 31
   Cost of direct materials placed in production
   Direct labor Direct materials purchases Finished goods inventory, January 1 Finished goods inventory, January 31 Work in process inventory, January 1 Work in process inventory, January 31
   Direct materials purchases Factory overhead Finished goods inventory, January 1 Finished goods inventory, January 31 Work in process inventory, January 1 Work in process inventory, January 31
   Total manufacturing costs
   Total work in process during the period
   Less: Direct materials inventory, January 1 Less: Direct materials inventory, January 31 Less: Finished goods inventory, January 1 Less: Finished goods inventory, January 31 Less: Work in process inventory, January 1 Less: Work in process inventory, January 31
   Cost of goods manufactured
   Cost of finished goods available for sale
   Less: Direct materials inventory, January 1 Less: Direct materials inventory, January 31 Less: Finished goods inventory, January 1 Less: Finished goods inventory, January 31 Less: Work in process inventory, January 1 Less: Work in process inventory, January 31
   Cost of goods sold			$

   7. Prepare a selling and administrative expenses budget for January.

   Birds of a Feather Inc. Selling and Administrative Expenses Budget For the Month Ending January 31
   Selling expenses:
   	Sales salaries expense
   	Advertising expense
   	Telephone expense—selling
   	Travel expense—selling
   	Total selling expenses
   Administrative expenses:
   	Office salaries expense
   	Depreciation expense—office equipment
   	Telephone expense—administrative
   	Office supplies expense
   	Miscellaneous administrative expense
   	Total administrative expenses
   Total operating expenses			$

   8. Prepare a budgeted income statement for January.

   Birds of a Feather Inc. Budgeted Income Statement For the Month Ending January 31
   Gross profit Income before income tax Interest expense Interest revenue Revenue from sales
   Administrative expenses Cost of goods sold Income tax expense Interest expense Selling expenses
   Gross profit Interest revenue Net income Net loss Revenue from sales
   Selling and administrative expenses:
   	Cost of goods sold Income tax expense Interest expense Net loss Selling expenses
   	Administrative expenses Gross profit Income tax expense Interest expense Interest revenue
   	Total selling and administrative expenses
   Income from operations Loss from operations
   Other revenue:
   	Gross profit Interest revenue Interest expense Net income Revenue from sales
   Other expenses:
   	Cost of goods sold Income tax expense Interest expense Net loss Selling expenses
   Income before income tax Loss before income tax
   Cost of goods sold Income tax (30% rate) Interest expense
   Gross profit Net loss Net income			$

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