Computing the amount of investment income and preparing
[I] consolidation entries—Cost method
Assume that a wholly owned subsidiary sells inventory to the parent
company. The parent company, ultimately, sells the inventory to
customers outside of the consolidated group. You have compiled the
following data for the years ending 2015 and 2016:
| Subsidiary Net Income |
Intercompany Inventory Sales |
Gross Profit % | Inventory Remaining at End of Year |
Receivable (Payable) |
|
|---|---|---|---|---|---|
| 2016 | $1,800,000 | $270,000 | 34% | 15% | $90,000 |
| 2015 | $1,440,000 | $180,000 | 30% | 18% | $72,000 |
Assume that inventory not remaining at the end of the year was sold
outside of the consolidated group during the year. The subsidiary
paid $1,350,000 in dividends during 2016.
a. How much Income (loss) from subsidiary should the parent report in its pre-consolidation income statement the year ending 2016 assuming that it uses the cost method of accounting for its Equity Investment?
$Answer
b. Prepare the required [I] consolidation entries for 2016.
| Consolidation Journal | |||
|---|---|---|---|
| Description | Debit | Credit | |
| [Icogs] | AnswerAccounts payableAccounts receivableCost of goods soldInventoryInvestment in subsidiarySales | Answer | Answer |
| AnswerAccounts payableAccounts receivableCost of goods soldInventoryInvestment in subsidiarySales | Answer | Answer | |
| To recognize prior year profit on intercompany sales. | |||
| [Isales] | AnswerAccounts payableAccounts receivableCost of goods soldInventoryInvestment in subsidiarySales | Answer | Answer |
| AnswerAccounts payableAccounts receivableCost of goods soldInventoryInvestment in subsidiarySales | Answer | Answer | |
| To eliminate intercompany sales. | |||
| [Icogs] | AnswerAccounts payableAccounts receivableCost of goods soldInventoryInvestment in subsidiarySales | Answer | Answer |
| AnswerAccounts payableAccounts receivableCost of goods soldInventoryInvestment in subsidiarySales | Answer | Answer | |
| To defer current period profit on intercompany sales. | |||
| [Ipay] | AnswerAccounts payableAccounts receivableCost of goods soldInventoryInvestment in subsidiarySales | Answer | Answer
Correct |
| AnswerAccounts payableAccounts receivableCost of goods soldInventoryInvestment in subsidiarySales | Answer | Answer | |
| To eliminate intercompany receivables/payables. | |||
In: Accounting
1. Calculating inflation using a simple price index
Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2014, 2015, and 2016.
The cost of each item in the basket and the total cost of the basket are shown for 2014.
Perform these same calculations for 2015 and 2016, and enter the results in the following table.
|
Quantity in Basket |
2014 |
2015 |
2016 |
||||
|---|---|---|---|---|---|---|---|
|
Price |
Cost |
Price |
Cost |
Price |
Cost |
||
|
(Dollars) |
(Dollars) |
(Dollars) |
(Dollars) |
(Dollars) |
(Dollars) |
||
| Notebooks | 10 | 3 | 30 | 3 | 4 | ||
| Calculators | 1 | 75 | 75 | 80 | 104 | ||
| Large coffees | 300 | 2 | 600 | 2 | 2 | ||
| Energy drinks | 75 | 2 | 150 | 4 | 5 | ||
| Textbooks | 8 | 90 | 720 | 110 | 120 | ||
| Total cost | 1,575 | ||||||
| Price index | 100 | ||||||
Suppose the base year for this price index is 2014.
In the last row of the table, calculate and enter the value of the CSPI for the remaining years.
Between 2014 and 2015, the CSPI increased by ( )% Between 2015 and 2016, the CSPI increased by ( )%.
.
Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply.
A: As the price of calculators rose, fewer students decided to buy them, opting instead to use the free calculators in their cell phones or on their computers.
B: A new mobile device for personal computing became available for purchase.
C: Energy drinks became increasingly popular on college campuses between 2014 and 2016 due to significant improvements in flavor, but this quality change is hard to measure.
D: Professors required each student to buy 10 notebooks, regardless of the price.
In: Economics
Question 6
Production Inc. has a year end date of June 30 and produces small electronic music parts. The company records depreciation to the nearest whole month in the year a capital assets is purchased. On March 20, 2016, they purchased and put into use a new production machine by spending the following amounts:
Invoice price of the machinery (purchase terms 1/10, n30) - paid March 25 $190,000
Freight to have the machinery delivered to Production's facility 5：000
Duty upon shipment of the machinery to Production's facility 4,900
Damage as a result of an employee dropping his Starbuck's latte
into the motor of the new machinery 3,000
Cost of mounting the machinery on a permanent platform in the warehouse 2,000
The management of Production Inc. has made the following assumptions:
Years the machine is expected to be used in the business 5 years
Number of products the machinery is expected to produce 1,000,000
Expected salvage value at the end of 5 years $50,000
REQUIRED:
Compute depreciation under each of the following three methods for the first 5 year ends of Production Inc. following the purchase of the machine.
Assume for the units of output method that the number of products produced in each of the following business years are as follows:
2016 80,000 units 2017 250,000 units
2018 245,000 units 2019 205,000 units
2020 225,000 units
|
Method-Units of Output |
Depreciation expense |
Acc. Depreciation |
Net Book Value, End |
|
2016 |
|||
|
2017 |
|||
|
2018 |
|||
|
2019 |
|||
|
2020 |
|
Method - Double Declining Balance |
Net Book Value, Beginning of year |
Depreciation Expense |
Accumulated Depreciation |
Net Book Value, End of year |
|
2016 |
||||
|
2017 |
||||
|
2018 |
||||
|
2019 |
||||
|
2020 |
|
Method - Straight Line |
Depreciation expense |
Acc. Depreciation |
Net Book Value, End |
|
2016 |
|||
|
2017 |
|||
|
2018 |
|||
|
2019 |
|||
|
2020 |
In: Accounting
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Compute each of the following ratios for 2016 and 2017 and |
||
|
indicate whether each ratio was getting "better" or "worse" from 2016 to 2017 |
||
|
and whether the 2017 ratio was "good" or "bad" compared to the Industry Avg |
||
|
(round all numbers to 2 digits past the decimal place) |
||
|
2016 |
2017 |
Getting Better or Getting Worse? |
2017 Industry Avg |
"Good" or "Bad" compared to Industry Avg |
|
|
Profit Margin |
0.09 |
||||
|
Current Ratio |
1.80 |
||||
|
Quick Ratio |
1.12 |
||||
|
Return on Assets |
0.18 |
||||
|
Debt to Assets |
0.60 |
||||
|
Receivables turnover |
12.00 |
||||
|
Avg. collection period* |
22.10 |
||||
|
Inventory Turnover** |
8.25 |
||||
|
Return on Equity |
0.16 |
||||
|
Times Interest Earned |
8.15 |
||||
|
*Assume a 360 day year |
|||||
|
**Inventory Turnover can be computed 2 different ways. Use the formula listed in the text |
|||||
|
(the one the text indicates many credit reporting agencies generally use) |
|||||
In: Finance
3. Which of the following transactions would be included in GDP
for the third and fourth quarter of 2016?
(x) In October 2016, Archie sells his collection of old baseball
cards to a baseball card dealer.
(y) In November 2016, Barry eats potatoes that he harvested from
his backyard garden in September 2016.
(z) In December 2016, Cathy visits her dentist to take care of a
bothersome toothache. She pays for the visit in January 2017.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only
4. Which of the following statements is (are) correct?
(x) According to the macroeconomist, U.S. investment increases
when Darla, a U.S. resident buys a newly issued stock in a U.S.
corporation
(y) Purchases of newly constructed homes, changes in inventory and
the purchase of newly produced capital goods such as industrial
equipment are included in the investment component of GDP.
(z) If a Canadian firm builds a new production facility in the
state of New York, then it would be reflected as an increase in
investment in the U.S. and GDP in the U.S. would be higher as a
result.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only
5. Suppose that a country produces 60,000 units of good F which
sells at $3 a unit and 120,000 units of good G which sells at $2
per unit. Both of the goods are final goods. The production of good
F contributes ________ as much to this country’s GDP as the
production of good G.
A. 1/2 times
B. 3/4 times
C. 3/2 times
D. 4/3 times
E. None of the above
In: Economics
Using an Aging Schedule to Account for Bad Debts
Sparkle Jewels distributes fine stones. It sells on credit to retail jewelry stores and extends terms that require the stores to pay in 60 days. For accounts that are not overdue, Sparkle has found that there is a 90% probability of collection. For accounts up to one month past due, the likelihood of collection decreases to 75%. If accounts are between one and two months past due, the probability of collection is 60%, and if an account is over two months past due, Sparkle Jewels estimates only a 40% chance of collecting the receivable.
On December 31, 2016, the credit balance in Allowance for Doubtful Accounts is $11,500. The amounts of gross receivables by age on this date are as follows:
| Category | Amount |
| Current | $195,000 |
| Past due: | |
| Less than one month | 44,300 |
| One to two months | 24,800 |
| Over two months | 1,400 |
Required:
1. Prepare a schedule to estimate the amount of uncollectible accounts at December 31, 2016.
| Sparkle Jewels | |||
| Aging Schedule to Account for Bad Debts | |||
| Category | Amount | Estimated Percent Uncollectible | Estimated Amount Uncollectible |
| Current | $195,000 | ||
| Past due: | |||
| Less than one month | 44,300 | ||
| One to two months | 24,800 | ||
| Over two months | 1,400 | ||
| Totals | $265,500 | ||
2. On the basis of the schedule in part (1), prepare the journal entry on December 31, 2016, to estimate bad debts. Indicate the effect on financial statement items by selecting "–" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.
| Journal | Balance Sheet | Income Statement | |||||||||||||
| Stockholders’ | Net | ||||||||||||||
| Date | Description | Debit | Credit | Assets | = | Liabilities | + | Equity | Revenues | – | Expenses | = | Income | ||
| 2016 | |||||||||||||||
| Dec. 31 | |||||||||||||||
3. Show how accounts receivable would be presented on the December 31, 2016, balance sheet.
| Sparkle Jewels | ||
| Partial Balance Sheet | ||
| Current Assets | ||
In: Accounting
Ratios (Appendix)
Byers Company presents the following condensed income statement for 2016 and condensed December 31, 2016, balance sheet:
| Income Statement | |||
| Sales (net) | $267,000 | ||
| Less: | |||
| Cost of goods sold | $160,000 | ||
| Operating expenses | 62,000 | ||
| Interest expense | 11,000 | ||
| Income taxes | 10,000 | ||
| Total expenses | (243,000) | ||
| Net income | $24,000 | ||
| Balance Sheet | ||||
| Cash | $10,000 | Current liabilities | $40,000 | |
| Receivables (net) | 22,000 | Bonds payable, 10% | 110,000 | |
| Inventory | 56,000 | Common stock, $10 par | 100,000 | |
| Long-term investments | 30,000 | Additional paid-in capital | 95,000 | |
| Property and equipment (net) | 282,000 | Retained earnings | 55,000 | |
| Total Assets | $400,000 | Total Liabilities and Shareholders' Equity | $400,000 | |
Additional information:
The company's common stock was outstanding the entire year.
Dividends of $1.50 per share on the common stock were declared in 2016.
On December 31, 2016, common stock is selling for $20 per share.
On January 1, 2016, the accounts receivable (net) balance was $24,000, total assets amounted to $380,000, and total shareholders' equity was $241,000.
Of the company's net sales, 78% are on credit.
The company operates on a 365-day business year.
Required
On the basis of the preceding information, compute the following ratios for the Byers Company:
(Round to two decimal places.)
| 1. Earnings per share: | % |
| 2. Gross profit margin: | % |
| 3. Operating profit margin: | % |
| 4. Net profit margin: | % |
| 5. Total asset turnover: | times |
| 6. Return on assets (Round tax rate to the nearest whole percent in your intermediate calculations.) | % |
| 7. Return on common equity | % |
| 8. Receivables turnover (in days): (Round your intermediate calculation to two decimal places.) | days |
| 9. Interest coverage: (in times) | times |
In: Accounting
Mr Lee, an Information Technology senior executive from mainland China, was under an employment contract in Malaysia with MSC Sdn Bhd since 1 November 2014. Since then,his pattern of stay until he left Malaysia permanently on 31 December 2019 was as follows:
Period of stay Place of stay
01 November 2014 to 31 December 2015 In Malaysia
01 January 2016 to 31 August 2016 In New Zealand, staying with his uncle
01 September 2016 to 19 September 2016 In HK visiting mother who was seriously ill
20 September 2016 to 03 February 2017 In Malaysia
04 February 2017 to 31 August 2017 In France to undertake a company project
01 September 2017 to 17 November 2018 In Malaysia
18 November 2018 to 30 November 2018 In China (13 days) for a vacation
01 December 2018 to 31 December 2019 In Malaysia
Required:
(a) Determine the residence status of Mr Lee for Years of Assessments 2014 to 2019 under the Income Tax Act (ITA) 1967.
(Your answer should state the relevant legislation under the ITA 1967)
P/S: EXAMPLE ANSWER (a) WILL BE LIKE THIS .
|
Year |
Total days present in Malaysia |
Status resident / non-resident |
Section Section 7(1)(a), Section 7(1)(b), Section 7(1)(c),Section 7(1)(d) |
Explanation |
|
2014 |
190 Days |
Resident |
Section 7(1)(a) |
jane is resident for the 3 immediately preceding basis years.Under this category, an individual can be a resident in Malaysia even though he might never actually have been in Malaysia at all during that basis year. |
(b) Distinguish the requirements between Sections 7(1)(b) and 7(1B) of the ITA 1967.
In: Accounting
Note - "?$" -means you need to imput the number (inside all of those tables)
Insufficient knowledge - what does that mean!?
15. Top of Form
Reformulating Allowance for Doubtful Accounts and Bad Debt Expense
Merck & Company reported the following from its 2016 financial statements.
|
$ millions |
2013 |
2014 |
2015 |
2016 |
|
|
Accounts receivable, net |
$7,666 |
$7,105 |
$6,965 |
$7,499 |
|
|
Allowance for doubtful accounts |
170 |
179 |
191 |
225 |
a. Compute accounts receivable gross for each year.
|
$ millions |
2013 |
2014 |
2015 |
2016 |
|
|
Accounts receivable, gross |
?$ |
?$ |
?$ |
?$ |
b. Determine the percentage of allowance to gross account
receivables for each year.
Round answers to two decimal places (ex: 0.02345 = 2.35%).
|
2013 |
2014 |
2015 |
2016 |
||||
|
% allowance |
?% |
?% |
?% |
?% |
|||
c. Assume that we want to reformulate the balance sheet and income
statement to reflect a constant percentage of allowance to gross
accounts receivables for each year. Compute the four-year average
and then reformulate the balance sheet and income statements for
each of the four years. Follow the process shown in Analyst
Adjustments 5.2 and assume a tax rate of 35%.
Four- year average of percentage of allowance to gross accounts receivables.
Round answer to two decimal places (ex: 0.02345 = 2.35%)
Answer. __%
Reformulate the balance sheet and income statements.
|
2013 |
2014 |
2015 |
2016 |
||
|
Adjusted allowance for doubtful accts. |
?$ |
?$ |
?$ |
?$ |
|
|
Balance Sheets Adjustments |
|||||
|
Allowance for doubtful accounts |
?$ |
?$ |
?$ |
?$ |
|
|
Accounts receivable, net |
?$ |
?$ |
?$ |
?$ |
|
|
Deferred tax liabilities |
?$ |
?$ |
?$ |
?$ |
|
|
Retained Earnings |
?$ |
?$ |
?$ |
?$ |
|
|
Income Statements Adjustments |
|||||
|
Bad debts expense |
?$ |
?$ |
?$ |
?$ |
|
|
Income tax expense at 35% |
?$ |
?$ |
?$ |
?$ |
|
|
Net Income |
?$ |
?$ |
?$ |
?$ |
Bottom of Form
In: Accounting
Calculating inflation using a simple price index
Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student’s annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2014, 2015, and 2016.
The cost of each item in the basket and the total cost of the basket are shown for 2014.
Perform these same calculations for 2015 and 2016, and enter the results in the following table.
| Quantity in Basket |
2014 |
2015 |
2016 |
||||
|---|---|---|---|---|---|---|---|
| Price | Cost | Price | Cost | Price | Cost | ||
| (Dollars) | (Dollars) | (Dollars) | (Dollars) | (Dollars) | (Dollars) | ||
| Notebooks | 10 | 2 | 20 | 1 | --- | 3 | --- |
| Calculators | 1 | 50 | 50 | 54 | --- | 75 | --- |
| Large coffees | 200 | 1 | 200 | 1 | --- | 1 | --- |
| Energy drinks | 100 | 2 | 200 | 3 | --- | 4 | --- |
| Textbooks | 10 | 100 | 1,000 | 120 | --- | 150 | --- |
| Total cost | 1,470 | --- | --- | ||||
| Price index | 100 | --- |
? Suppose the base year for this price index is 2014. In the last row of the table, calculate and enter the value of the CSPI for the remaining years. Between 2014 and 2015, the CSPI increased by____%. Between 2015 and 2016, the CSPI increased by |
||||
___%
Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply.
a.) Professors required each student to buy 10 textbooks, regardless of the price.
b.)Energy drinks became increasingly popular on college campuses between 2014 and 2016 due to significant improvements in flavor, but this quality change is hard to measure.
c.)A new mobile device for personal computing became available for purchase.
d.)As the price of calculators rose, fewer students decided to buy them, opting instead to use the free calculators in their cell phones or on their computers.
In: Economics