CHAPTER 18
ALLIED TESTING COMPANY MANUFACTURES AND SELLS THERMOMETERS THAT DETECT BODY TEMPERATURE. IT IS EXPECTING AN INCREASE IN SALES DUE TO THE CORONAVIRUS PANDEMIC. ALLIED HAS APPLIED FOR A LOAN TO FUND EXPANSION AND THE BANK IS REQUIRING FINANCIAL INFORMATION.
2020 ACTIVITY
NET REVENUE FOR THE YEAR $2,700,000
SELLING EXPENSES $ 200,000
ADMINISTRATIVE EXPENSES $ 110,000
BEGINNING FINISHED GOODS INVENTORY $ 40,000
ENDING FINISHED GOODS INVENTORY $ 60,000
BEGINNING WORK IN PROCESS INVENTORY $ 20,000
ENDING WORK IN PROCESS INVENTORY $ 100,000
BEGINNING DIRECT MATERIALS $ 250,000
DIRECT MATERIALS PURCHASED DURING MONTH $ 740,000
ENDING DIRECT MATERIALS $ 80,000
DIRECT LABOR FOR THE MONTH $ 220,000
PLANT UTILITIES FOR THE MONTH $ 27,000
PLANT INSURANCE FOR THE MONTH $ 19,000
PLANT MAINTENANCE FOR THE MONTH $ 30,000
PLANT DEPRECIATION FOR THE MONTH $ 24,000
REQUIRED:
CHAPTER 18
ALLIED TESTING COMPANY MANUFACTURES AND SELLS THERMOMETERS THAT DETECT BODY TEMPERATURE. IT IS EXPECTING AN INCREASE IN SALES DUE TO THE CORONAVIRUS PANDEMIC. ALLIED HAS APPLIED FOR A LOAN TO FUND EXPANSION AND THE BANK IS REQUIRING FINANCIAL INFORMATION.
2020 ACTIVITY
NET REVENUE FOR THE YEAR $2,700,000
SELLING EXPENSES $ 200,000
ADMINISTRATIVE EXPENSES $ 110,000
BEGINNING FINISHED GOODS INVENTORY $ 40,000
ENDING FINISHED GOODS INVENTORY $ 60,000
BEGINNING WORK IN PROCESS INVENTORY $ 20,000
ENDING WORK IN PROCESS INVENTORY $ 100,000
BEGINNING DIRECT MATERIALS $ 250,000
DIRECT MATERIALS PURCHASED DURING MONTH $ 740,000
ENDING DIRECT MATERIALS $ 80,000
DIRECT LABOR FOR THE MONTH $ 220,000
PLANT UTILITIES FOR THE MONTH $ 27,000
PLANT INSURANCE FOR THE MONTH $ 19,000
PLANT MAINTENANCE FOR THE MONTH $ 30,000
PLANT DEPRECIATION FOR THE MONTH $ 24,000
REQUIRED:
In: Accounting
Answer for 8 and 9
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a typical $1000 face value) that had an annual coupon value of $60. [We are assuming that the 2020 coupon has just been redeemed.]
1. What was the nominal yield on this bond on October 15, 2016? 6% [To 1 decimal place.]
2. What was the current yield on this bond on October 15, 2016?5.36% [To 2 decimal places.]
3. What was the yield to maturity for this bond on October 15, 2016? 5.679% [To 3 decimal places.]
4. What was the risk premium for this bond on October 15, 2016? 1.179% [To 3 decimal places.]
5. What was the nominal yield on this bond on October 15, 2020?6% [To 1 decimal place.]
6. What was the current yield on this bond on October 15, 2020?6.15% [To 2 decimal place.]
7. What was the yield to maturity for this bond on October 15, 2020?6.346% [To 3 decimal places.]
8. What was the risk premium for this bond on October 15, 2020? [To 3 decimal places.]
9. It is now October 15, 2020 and suddenly the Federal Reserve announces a massive program to reduce inflation. Instantly, the market rate of interest for a riskless corporate bond that would apply to this bond, falls from 4.0% to 2.5%. If there is no change in the risk premium expected for this Koala, Inc. bond, what will be this bond’s yield to maturity? [To 3 decimal places.]
In: Finance
| 1. | On January 1, 2020, Riverbed signed an agreement to operate as a franchisee of Copy Service Inc., for an initial franchise fee of $75,000. Of this amount, $35,000 was paid when the agreement was signed and the balance is payable in four annual payments of $10,000 each, beginning January 1, 2022. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 1, 2020, of the four annual payments discounted at 7% (the implicit rate for a loan of this type) is $33,872. The agreement also provides that 5% of the franchisee’s revenue must be paid to the franchisor each year. The franchisor requires that Riverbed provide it with some form of assurance verifying the revenue amount used to determine the 5% payment. Riverbed’s revenue from the franchise for 2020 was $760,000. Riverbed estimates that the franchise’s useful life will be 10 years. | |
| 2. | Riverbed incurred $45,000 in experimental costs in its laboratory to develop a patent, and the patent was granted on January 2, 2020. Legal fees and other costs of patent registration totalled $13,600. Riverbed estimates that the useful life of the patent will be 6 years. | |
| 3. | A trademark was purchased from Shanghai Company for $28,700 on July 1, 2017. The legal costs to successfully defend the trademark totalled $8,160 and were paid on July 1, 2020. Riverbed estimates that the trademark’s useful life will be 14 years from the acquisition date. |
Assume that Riverbed reports using ASPE. Prepare a schedule showing the intangible assets section of Riverbed’s statement of financial position at December 31, 2020. (Round answers to 0 decimal places, e.g. 5,275. Enter account name only and do not provide descriptive information.)
| Riverbed Corporation Intangible Assets December 31, 2020 |
||
| $ | ||
| Total Intangible Assets | $ | |
Compute the total amount of expenses resulting from the transactions that would appear on Riverbed’s income statement for the year ended December 31, 2020.
In: Accounting
Jen and Larry’s Frozen Yogurt Company
In 2019, Jennifer (Jen) Liu and Larry Mestas founded Jean and Larry’s Frozen Yogurt Company, which was based on the idea of applying the microbrew or microbatch strategy to the production and sale of frozen yogurt. Jen and Larry began producing small quantities of unique flavors and blends in limited editions. Revenues were $600,000 in 2019 and were estimated to be $1.2 million in 2020.
Because Jen and Larry were selling premium frozen yogurt containing premium ingredients, each small cup of yogurt sold for $3, and the cost of producing the frozen yogurt averaged $1.50 per cup. Administrative expenses, including Jen and Larry’s salary and expenses for an accountant and two other administrative staff, were estimated at $180,000 in 2020. Marketing expenses, largely in the form of behind-the-counter workers, in-store posters, and advertising in local newspapers, were projected to be $200,000 in 2020.
An investment in bricks and mortar was necessary to make and sell the yogurt. Initial specialty equipment and the renovation of an old warehouse building in lower downtown (known as LoDo) occurred at the beginning of 2019. Additional equipment needed to make the amount of yogurt forecasted to be sold in 2020 was purchased at the beginning of 2020. As a result, depreciation expenses were expected to be $50,000 in 2020. Interest expenses were estimated at $15,000 in 2020. The average tax rate was expected to be 25% of taxable income.
Show what would happen to the EBDAT breakeven point in terms of survival sales if an additional $30,000 was spent on advertising in 2020 while the other fixed costs remained the same, production costs remained at $1.50 per cup, and the selling price remained at $3.00 per cup.
Now assume that, due to competition, Jen and Larry must sell their frozen yogurt for $2.80 per cup in 2020. The cost of producing the yogurt is expected to remain t $1.50 per cup and cash fixed costs are forecasted to be $395,000 ($180,000 in administrative, $200,000 in marketing, and $15,000 in interest expenses). Depreciation expenses and the tax rate are also expected to remain the same as projected in the initial discussion of Jen and Larry’s venture. Calculate the EBDAT breakeven point in terms of survival breakeven revenues.
In: Finance
Q3 Foreign currency translation A: 20 marks
On January 1, 2020, in an effort to diversify, Bauman Corp. (a Canadian company that sells decorative cedar branches), purchased 80% of Noskova Inc, an American company that manufacturers nitrous oxide, for US$50,000.
Noskova’s book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Noskova’s January 1, 2020, Balance Sheet is shown below (in U.S. dollars):
|
Current Monetary Assets |
$50,000 |
|
Inventory |
$40,000 |
|
Plant and Equipment |
$25,000 |
|
Total Assets |
$115,000 |
|
Current Liabilities |
$45,000 |
|
Bonds Payable (maturity: January 1, 2026) |
$20,000 |
|
Common Shares |
$30,000 |
|
Retained Earnings |
$20,000 |
|
Total Liabilities and Equity |
$115,000 |
The following exchange rates were in effect during 2020:
|
January 1, 2020: |
US $1 = CDN $1.3250 |
|
Average for 2020: |
US $1 = CDN $1.3350 |
|
Date when Ending Inventory Purchased: |
US $1 = CDN $1.34 |
|
December 31, 2020: |
US $1 = CDN $1.35 |
Sales, purchases and other expenses occurred evenly throughout
the year.
Dividends declared and paid December 31, 2020.
The financial statements of Bauman (in Canadian dollars) and
Noskova (in U.S. dollars) are shown below:
Balance Sheets
|
Bauman |
Noskova |
|
|
Current Monetary Assets |
$42,050 |
$65,000 |
|
Inventory |
$60,000 |
$50,000 |
|
Plant and Equipment |
$23,500 |
$20,000 |
|
Investment in Martin (at Cost) |
$66,250 |
|
|
Assets |
$191,800 |
$135,000 |
|
Current Liabilities |
$50,000 |
$48,000 |
|
Bonds Payable (maturity: January 1, 2026) |
$35,000 |
$20,000 |
|
Common Shares |
$60,000 |
$30,000 |
|
Retained Earnings |
$30,000 |
$20,000 |
|
Net Income |
$28,800 |
$27,000 |
|
Dividends |
($12,000) |
($10,000) |
|
Liabilities and Equity |
$191,800 |
$135,000 |
|
Income Statements |
Larmer |
Martin |
|
Sales |
$80,000 |
$50,000 |
|
Dividend Income |
$10,800 |
|
|
Cost of Sales |
($40,000) |
($15,000) |
|
Depreciation |
($10,000) |
($5,000) |
|
Other expenses |
($12,000) |
($3,000) |
|
Net Income |
$28,800 |
$27,000 |
Translate Noskova’s 2020 Income Statement into Canadian dollars if the functional currency is the Canadian dollar (i.e. the same functional currency as the parent).
In: Accounting
Aubrae and Tylor Williamson began operations of their furniture repair shop (Furniture Refinishers, Inc.) on January 1, 2019. The annual reporting period ends December 31. The trial balance on January 1, 2020, was as follows:
| Furniture Refinishers, Inc. Trial Balance on January 1, 2020 |
|||||||
| Account Titles | Debit | Credit | |||||
| Cash | 5,000 | ||||||
| Accounts receivable | 4,000 | ||||||
| Supplies | 6,000 | ||||||
| Small tools | 6,000 | ||||||
| Equipment | |||||||
| Accumulated depreciation (on equipment) | |||||||
| Other noncurrent assets (not detailed to simplify) | 8,000 | ||||||
| Accounts payable | 6,000 | ||||||
| Dividends payable | |||||||
| Notes payable | |||||||
| Wages payable | |||||||
| Interest payable | |||||||
| Income taxes payable | |||||||
| Unearned revenue | |||||||
| Common stock (40,000 shares, $0.10 par value) | 4,000 | ||||||
| Additional paid-in capital | 6,000 | ||||||
| Retained earnings | 13,000 | ||||||
| Service revenue | |||||||
| Depreciation expense | |||||||
| Wages expense | |||||||
| Interest expense | |||||||
| Income tax expense | |||||||
| Miscellaneous expenses (not detailed to simplify) | |||||||
| Totals | 29,000 | 29,000 | |||||
Transactions during 2020 follow:
Data for adjusting entries:
In: Accounting
| Spring 2020 Spreadsheet Project | ||||||
| Name: | ||||||
| Lexie's Wool Sweaters | ||||||
| Projected Budgeting Data | ||||||
| Sales & Collections | ||||||
|
October 2020 |
November 2020 |
December 2020 |
January 2021 |
February 2021 |
||
| Sales in Units (Sweaters) | 30,000 | 34,000 | 55,000 | 47,000 | 32,000 | |
| Selling Price per Sweater | $ 100.00 | |||||
| Cash Sales Collected in the Month of Sale | 30% | |||||
| Credit Sales Collected in the Month of Sale | 50% | |||||
| Credit Sales Collected in the Following Month | 20% | |||||
| Ending FG Inventory Requirement | 3% | of next months unit sweater sales | ||||
| Ending FG Inventory, September 30 , 2020 | 1,500 | sweaters | ||||
| Product Input Expenses | ||||||
| Direct Materials | ||||||
| Ending RM Inventory, September 30, 2020 | 8265.60 | yards | ||||
| Yards of Wool Required per Sweater | 4 | yards per sweater | ||||
| Raw Materials Cost per Yard of Wool | $ 3.50 | per yard | ||||
| Ending RM Inventory Requirement | 7% | of next months sweater production needs | ||||
| Wool Purchases Paid for in the Month of Purchase | 85% | |||||
| Wool Purchases Paid for in the Month following the Purchase | 15% | |||||
| Direct Labor | ||||||
| Number of Workers Required for the Making of Each Sweater | 5 | workers | ||||
| Labor Hours Required per Worker per Unit of FG (Sweater) | 0.5 | hours | ||||
| Labor Cost per Hour | $ 15.00 | per hour | ||||
| Manufacturing Overhead | ||||||
| Variable Manufacturing Overhead | $ 11.75 | per sweater | ||||
| Fixed Manufacturing Overhead | $ 30,200.00 | per month (Oct.) | $ 30,750.00 | per month (Nov. & beyond) | ||
| Noncash Fixed Manufacturing Overhead (included in above) | $ 10,250.00 | per month (Oct.) | $ 15,750.00 | per month (Nov. & beyond) | ||
| Selling & Administrative Expenses | ||||||
| Variable S&A | $ 7.37 | per unit sold | ||||
| Fixed S&A | $ 23,900.00 | per month | ||||
| Noncash Fixed S&A (included in above) | $ (10,750.00) | per month | ||||
| Factory Update & Cash Flow | ||||||
| Factory Update (PP&E) | $ 400,500.00 | paid on October 31, 2020 | ||||
| Principle Borrowed on October 1, 2020 | $ 300,000.00 | |||||
| Principle Repaid on November 30, 2020 | $ 300,000.00 | |||||
| Interest Payment on Borrowings in October & November | $ 9,000.00 |
per month (paid in following month) |
||||
Create a Schedule of Cash Collections in Excel using formulas only
In: Accounting
Headquartered in Toronto, Indigo Books & Music Inc. (TSX: IDG) is Canada’s largest book retailer and the third largest in North America. The following information was taken from the management discussion and analysis section of the company’s March 31, 2020, annual report (in thousands):
|
2020 |
2019 |
2018 |
|
|
Cost of sales (cost of goods sold) |
$600,400 |
$585,700 |
$538,500 |
|
Inventories |
$229,706 |
$232,694 |
$224,406 |
Additional information from the company’s annual report:
1. Inventories are valued at the lower of cost, determined using a moving average cost formula, and market, being net realizable value. Under this method, inventory is recorded at the level of the individual article (stock-keeping unit or SKU).
2. Costs include all direct and reasonable expenditures that are incurred in bringing inventories to their present location and condition. Vendor rebates are recorded as a reduction in the price of the products and corresponding inventory is recorded net of vendor rebates.
3. The average cost of an article is continually updated based on the cost of each purchase recorded in inventory. When the company permanently reduces the retail price of an item, there is a corresponding reduction in inventory recognized in the period if the markdown incurred brings the retail price below the cost of the item.
4. The amount of inventory write-downs as a result of net realizable value lower than cost was $10.3 million in 2020 ($7.3 million in fiscal 2019), and there were no reversals of inventory write-downs that were recognized in 2020 or in prior
periods. The amount of inventory at March 31, 2020 with net realizable value equal to cost was $1.7 million ($2.3 million at March 31, 2019).
(a) Calculate the company’s inventory turnover and days sales in inventory ratios for 2020 and 2019. Comment on whether Indigo’s management of its inventory improved or weakened in fiscal 2020.
|
Inventory Turnover |
Days Sales in Inventory |
|
|
2020 |
||
|
2019 |
(b) Does Indigo follow the lower of cost or net
realizable value rule? Did the application of this rule have any
effect on 2020 results? Explain
(c) Indigo uses the average cost formula to account for its
inventories. A major competitor, Amazon Inc., uses the FIFO cost
formula to account for its inventories. What difficulties would
this create in comparing Indigo’s financial results with those of
Amazon? Explain.
In: Accounting
Sheridan Inc. earns $470000 and pays cash dividends of $100000 during 2020. Carla Vista Corporation owns 62700 of the 209000 outstanding shares of Sheridan Inc. How much revenue from investment should Carla Vista report in 2020?
Sunland Inc. earns $550000 and pays cash dividends of $145000 during 2020. Wildhorse Corporation owns 73850 of the 211000 outstanding shares of Sunland. What amount should Wildhorse show in the investment account at December 31, 2020 if the beginning of the year balance in the account was $40000?
On January 2, Matthews Corporation acquired 20% of the outstanding common stock of Dennehy Company for $450,000. For the year ended December 31, Dennehy reported net income of $90,000 and paid cash dividends of $30,000 on its common stock. On December 31, the carrying value of Matthews’ investment in Dennehy under the equity method is
At December 31, 2020, the trading securities for Eddy Company are as follows:
Security Cost
Fair Value
A $16,000
$20,000
B 34,000
32,000
$50,000 $52,000
Prepare the adjusting entry at December 31, 2020, to report the securities at fair value. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
CoronadoCorp. has common stock of $4600000, retained earnings of
$1600000, unrealized gains on trading securities of $120000 and
unrealized losses on available-for-sale securities of $180000. What
is the total amount of its stockholders’ equity?
On January 1, 2020, Sheffield Corp. paid $940000 for 117500
shares of Ivanhoe Company’s common stock, which represents 26% of
Ivanhoe's outstanding common stock. Ivanhoe reported net income of
$224000 and paid cash dividends of $63000 during 2020. Sheffield
should report the investment in Ivanhoe Company on its December 31,
2020, balance sheet at:
Which of the following is the correct matching concerning the appropriate accounting for long-term stock investments?
% of Investor Ownership Accounting
Guidelines
Coronado Corporation purchased 960 shares of Wildhorse common stock ($50 par) at $82 per share as a short-term investment. The shares were subsequently sold at $78 per share. The cost of the securities purchased and gain or loss on the sale were
Cost Gain or Loss
In: Accounting
Analyzing Accounts and Notes Receivable; Computing Interest, Estimating Value, and Recording Bad Debts
Analyze each of the four separate scenarios and answer the requirements.
Note: Round each of your answers to the nearest whole dollar.
1. On December 31, 2020, Helena Company, a California real estate firm, received two $28,000 notes from customers in exchange for services rendered. The 8% note from El Dorado Company is due in nine months, and the 3% note from Newcastle Company is due in five years. The market interest rate for similar notes on December 31, 2020, was 8%. At what amounts should the two notes be reported in Helena’s December 31, 2020, balance sheet?
| Note receivable, El Dorado Company | Answer |
| Note receivable, Newcastle Company | Answer |
2. EPPA, an environmental management firm, issued to Dara, a $14,000, 8%, five-year installment note that required five equal annual year-end payments. This note was discounted to yield a 9% rate to Dara. What is the total amount of interest revenue to be recognized by Dara on this note?
| Total interest revenue | Answer |
3. On July 1, 2020, Lezix Company, a maker of denim clothing, sold goods in exchange for a $140,000, one-year, noninterest-bearing note. At the time of the sale, the market rate of interest was 12% on similar notes. At what amount should Lezix record the note receivable on July 1, 2020?
| Note receivable | Answer |
4. The records of Quest Company included the following accounts (with normal balances).
| Cash sales | $1,680,000 |
| Credit sales | 1,260,000 |
| Balance in accounts receivable, December 31, 2019 | 252,000 |
| Balance in accounts receivable, December 31, 2020 | 280,000 |
| Balance in allowance for doubtful accounts, December 31, 2019 (Cr.) | 4,200 |
| Accounts written off as uncollectible during 2020 | 7,000 |
The company estimates bad debts as 2% of receivables at year-end to be uncollectible.
Prepare the adjusting entry at December 31, 2020, to adjust the allowance for doubtful accounts.
| Date | Account Name | Dr. | Cr. |
|---|---|---|---|
| Dec. 31, 2020 | Answer |
| Answer | Answer |
| Answer |
| Answer | Answer |
In: Accounting