Sax Company signs a lease agreement dated January 1, 2019, that provides for it to lease computers from Appleton Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows:
| 1. | The lease term is 5 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. The computers are not specialized for Sax. |
| 2. | The computers have an estimated life of 5 years, a fair value of $300,000, and a zero estimated residual value. |
| 3. | Sax agrees to pay all executory costs directly to a third party. |
| 4. | The lease contains no renewal or bargain purchase options. |
| 5. | The annual payment is set by Appleton at $83,222.92 to earn a rate of return of 12% on its net investment. Sax is aware of this rate. Sax’s incremental borrowing rate is 10%. |
| 6. | Sax uses the straight-line method to record depreciation on similar equipment. |
Required:
| 1. | Next Level Examine and evaluate each capitalization criteria and determine what type of lease this is for Sax. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2. | Calculate the amount of the asset and liability of Sax at the inception of the lease (round to the nearest dollar). | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3. | Prepare a table summarizing the lease payments and interest expense. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4. |
Prepare journal entries for Sax for the years 2019 and 2020. |
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|
All transactions on this page must be entered (except for post ref(s)) before you will receive Check My Work feedback. PAGE 2019 GENERAL JOURNAL Score: 23/88
Record the right-of-use asset and the lease liability on January 1. Use the Summary of Lease Payments and Interest Expense Schedule to determine amounts for the payment and amortize the right-of-use asset using the straight-line method on December 31. 4b. Prepare journal entries for Sax for the year 2020. Question not attempted. PAGE 2020 GENERAL JOURNAL
|
In: Accounting
Schultz Electronics manufactures two ultra high-definition
television models: the Royale which sells for $1,480, and a new
model, the Majestic, which sells for $1,270. The production cost
computed per unit under traditional costing for each model in 2020
was as follows.
|
Traditional Costing |
Royale |
Majestic |
||
| Direct materials |
$640 |
$430 |
||
| Direct labor ($20 per hour) |
120 |
100 |
||
| Manufacturing overhead ($39 per DLH) |
234 |
195 |
||
| Total per unit cost |
$994 |
$725 |
In 2020, Schultz manufactured 25,000 units of the Royale and 10,000
units of the Majestic. The overhead rate of $39 per direct labor
hour was determined by dividing total estimated manufacturing
overhead of $7,887,400 by the total direct labor hours (200,000)
for the two models.
Under traditional costing, the gross profit on the models was
Royale $486 ($1,480 – $994) and Majestic $545 ($1,270 – $725).
Because of this difference, management is considering phasing out
the Royale model and increasing the production of the Majestic
model.
Before finalizing its decision, management asks Schultz’s
controller to prepare an analysis using activity-based costing
(ABC). The controller accumulates the following information about
overhead for the year ended December 31, 2020.
|
Activity |
Cost Drivers |
Estimated |
Estimated Use of |
Activity-Based |
||||
| Purchasing | Number of orders | $1,209,000 | 39,000 | $31/order | ||||
| Machine setups | Number of setups | 980,500 | 18,500 | $53/setup | ||||
| Machining | Machine hours | 4,883,100 | 119,100 | $41/hour | ||||
| Quality control | Number of inspections | 814,800 | 29,100 | $28/inspection |
The cost drivers used for each product were:
|
Cost Drivers |
Royale |
Majestic |
Total |
|||
| Purchase orders | 17,000 | 22,000 | 39,000 | |||
| Machine setups | 6,000 | 12,500 | 18,500 | |||
| Machine hours | 74,000 | 45,100 | 119,100 | |||
| Inspections | 11,000 | 18,100 | 29,100 |
Calculate cost per unit of each model using ABC costing.
(Round answers to 2 decimal places, e.g.
12.25.)
In: Accounting
Elegant Furniture Company(Elegant) manufactures and sells modern furniture. The company’s products only include two models of dining table: Deluxe and Simplicity. The selling prices and costs data for each unit of the products are as follows: Deluxe Simplicity $ $ Selling price 10,000 8,000 Direct materials (variable) 2,600 2,300 Direct labour (variable) 500 400 Manufacturing overhead (semi-variable, 90% fixed) 5,000 4,000 Selling expenses (variable) 400 400 Administrative expenses (fixed) 1,000 800 According to Elegant’s 2020 business plan, the company wants to achieve the target of manufacturing and selling at least 5,000 units of Deluxe and 2,000 units of Simplicity every month. Currently the company’s manufacturing process is limited by the machine capacity in the machining department. The total machine time available in the machining department is 78,000 minutes per month. Apart from this, there is no other relevant constraint on the manufacturing process. Each unit of Deluxe requires 12 minutes of machine time and each unit of Simplicity requires 6 minutes of machine time. Required:
(c) Assuming that there is unlimited demand for Deluxe and Simplicity at current selling prices, what product mix, i.e. how many units of Deluxe and Simplicity should Elegant produce and sell that will maximize its operating income while meeting its 2020 business plan? Show your calculations clearly.
(d) Assuming that the demand of Simplicity is limited to 2,500 units, what product mix should the company adopt to maximize operating income while meeting its 2020 business plan? Show your calculations clearly. (e) In view of the constraint on machining time, the production manager suggests to outsource the manufacture of Simplicity to a vendor who has offered a very competitive price. The management accountant has analysed and confirmed that there will be cost advantages from the outsourcing proposal. Suggest TWO strategic and qualitative issues that Elegant’s management may consider before making the decision. Question 2 Advanced Electronics Ltd (Advanced) manufactures and sells high-end electronic
In: Accounting
| Additional Information: | |||||||
| A. Sold plant assets with a cost of $75,000 and accumulated depreciation of $7,500, | |||||||
| yielding a gain of disposal of plant assets of $12,000. | |||||||
| B. Purchased plant assets by paying cash. | |||||||
| C. Issued Notes Payable for Cash. | |||||||
| D. Sold investment in Walking Dead Co at cost (zero gain/loss). | |||||||
| E. Issued Common Stock for Cash. | |||||||
| F. Purchased Treasury Stock for Cash. | |||||||
| Requirements: | |||||||
| Prepare, in good form, a Statement of Cash Flows using the indirect method. | |||||||
| Statement of Cash Flows | |||||||
| Angela's Cleaning Consortium | Seymour-Johnson, Inc. | ||||||
| Comparative Balance Sheet | Income Statement | ||||||
| December 31, 2020 and 2019 | For the Year Ended December 31, 2020 | ||||||
| 2020 | 2019 | Net sales | $ 386,000 | ||||
| ASSETS | Cost of goods sold | (212,000) | |||||
| Current assets | Gross profit | 174,000 | |||||
| Cash | $ 66,500 | $ 62,000 | Operating expenses | ||||
| Accounts receivable | 95,000 | 113,000 | Salaries and wages expense | (66,000) | |||
| Merchandise inventory | 172,000 | 165,000 | Depreciation expense | (25,000) | |||
| Total current assets | 333,500 | 340,000 | Other operating expenses | (28,000) | |||
| Long-term investments | Income from operations | 55,000 | |||||
| Investment in Walking Dead Co. | - | 50,000 | Other revenues and gains | ||||
| Property, buildings, and equipment | 507,000 | 304,000 | Interest revenue | 15,000 | |||
| Less: Accumulated depreciation | (59,500) | (42,000) | Dividend revenue | 9,700 | |||
| Total assets | $ 781,000 | $ 652,000 | Gain on disposal of plant assets | 12,000 | |||
| Liabilities and Stockholders' Equity | Other expenses and losses | ||||||
| Current liabilities | Interest expense | (15,000) | |||||
| Accounts payable | $ 144,000 | $ 175,000 | Income before income taxes | 76,700 | |||
| Accrued liabilities | 17,000 | 47,000 | Income tax expense | (14,000) | |||
| Total current assets | 161,000 | 222,000 | Net Income | $ 62,700 | |||
| Long-term Liabilities | |||||||
| Notes payable, long-term | 160,000 | 90,000 | |||||
| Total liabilities | 321,000 | 312,000 | |||||
| Stockholders' equity | |||||||
| Common stock | 370,000 | 250,000 | |||||
| Retained earnings | 140,000 | 90,000 | |||||
| Treasury stock | (50,000) | - | |||||
| Total Stockholders’ Equity | 460,000 | 340,000 | |||||
| Total Liabilities & Stockholders' Equity | $ 781,000 | $ 652,000 | |||||
In: Accounting
| Statement of Cash Flows | |||||||
| Angela's Cleaning Consortium | Seymour-Johnson, Inc. | ||||||
| Comparative Balance Sheet | Income Statement | ||||||
| December 31, 2020 and 2019 | For the Year Ended December 31, 2020 | ||||||
| 2020 | 2019 | Net sales | $ 386,000 | ||||
| ASSETS | Cost of goods sold | (212,000) | |||||
| Current assets | Gross profit | 174,000 | |||||
| Cash | $ 66,500 | $ 62,000 | Operating expenses | ||||
| Accounts receivable | 95,000 | 113,000 | Salaries and wages expense | (66,000) | |||
| Merchandise inventory | 172,000 | 165,000 | Depreciation expense | (25,000) | |||
| Total current assets | 333,500 | 340,000 | Other operating expenses | (28,000) | |||
| Long-term investments | Income from operations | 55,000 | |||||
| Investment in Walking Dead Co. | - | 50,000 | Other revenues and gains | ||||
| Property, buildings, and equipment | 507,000 | 304,000 | Interest revenue | 15,000 | |||
| Less: Accumulated depreciation | (59,500) | (42,000) | Dividend revenue | 9,700 | |||
| Total assets | $ 781,000 | $ 652,000 | Gain on disposal of plant assets | 12,000 | |||
| Liabilities and Stockholders' Equity | Other expenses and losses | ||||||
| Current liabilities | Interest expense | (15,000) | |||||
| Accounts payable | $ 144,000 | $ 175,000 | Income before income taxes | 76,700 | |||
| Accrued liabilities | 17,000 | 47,000 | Income tax expense | (14,000) | |||
| Total current assets | 161,000 | 222,000 | Net Income | $ 62,700 | |||
| Long-term Liabilities | |||||||
| Notes payable, long-term | 160,000 | 90,000 | |||||
| Total liabilities | 321,000 | 312,000 | |||||
| Stockholders' equity | |||||||
| Common stock | 370,000 | 250,000 | |||||
| Retained earnings | 140,000 | 90,000 | |||||
| Treasury stock | (50,000) | - | |||||
| Total Stockholders’ Equity | 460,000 | 340,000 | |||||
| Total Liabilities & Stockholders' Equity | $ 781,000 | $ 652,000 | |||||
| Additional Information: | |||||||
| A. Sold plant assets with a cost of $75,000 and accumulated depreciation of $7,500, | |||||||
| yielding a gain of disposal of plant assets of $12,000. | |||||||
| B. Purchased plant assets by paying cash. | |||||||
| C. Issued Notes Payable for Cash. | |||||||
| D. Sold investment in Walking Dead Co at cost (zero gain/loss). | |||||||
| E. Issued Common Stock for Cash. | |||||||
| F. Purchased Treasury Stock for Cash. | |||||||
| Requirements: | |||||||
| Prepare, in good form, a Statement of Cash Flows using the indirect method. | |||||||
In: Accounting
Comparative balance sheet accounts of Sweet Company are
presented below.
|
SWEET COMPANY |
||||
|
Debit Balances |
2020 |
2019 |
||
| Cash |
$69,600 |
$51,100 |
||
| Accounts Receivable |
156,500 |
130,000 |
||
| Inventory |
75,700 |
60,800 |
||
| Debt investments (available-for-sale) |
55,000 |
85,300 |
||
| Equipment |
69,600 |
47,800 |
||
| Buildings |
144,900 |
144,900 |
||
| Land |
39,600 |
25,200 |
||
| Totals |
$610,900 |
$545,100 |
||
|
Credit Balances |
||||
| Allowance for Doubtful Accounts |
$10,000 |
$8,000 |
||
| Accumulated Depreciation—Equipment |
20,800 |
14,100 |
||
| Accumulated Depreciation—Buildings |
37,000 |
27,900 |
||
| Accounts Payable |
66,500 |
59,800 |
||
| Income Taxes Payable |
11,900 |
10,000 |
||
| Long-Term Notes Payable |
62,000 |
70,000 |
||
| Common Stock |
310,000 |
260,000 |
||
| Retained Earnings |
92,700 |
95,300 |
||
| Totals |
$610,900 |
$545,100 |
||
Additional data:
| 1. | Equipment that cost $10,000 and was 60% depreciated was sold in 2020. | |
| 2. | Cash dividends were declared and paid during the year. | |
| 3. | Common stock was issued in exchange for land. | |
| 4. | Investments that cost $34,800 were sold during the year. | |
| 5. | There were no write-offs of uncollectible accounts during the year. |
Sweet’s 2020 income statement is as follows.
| Sales revenue |
$955,000 |
||||
| Less: Cost of goods sold |
601,700 |
||||
| Gross profit |
353,300 |
||||
| Less: Operating expenses (includes depreciation expense and bad debt expense) |
252,500 |
||||
| Income from operations |
100,800 |
||||
| Other revenues and expenses | |||||
| Gain on sale of investments |
$15,000 |
||||
| Loss on sale of equipment |
(2,900 |
) |
12,100 |
||
| Income before taxes |
112,900 |
||||
| Income taxes |
45,300 |
||||
| Net income |
$67,600 |
(a) Compute net cash provided by operating
activities under the direct method. (Enter negative
amounts using either a negative sign preceding the number e.g. -45
or parentheses e.g. (45).)
| Net cash flow from operating activities | $ |
(b) Prepare a statement of cash flows using the
indirect method. (Show amounts that decrease cash flow
with either a - sign e.g. -15,000 or in parenthesis e.g.
(15,000).)
In: Accounting
The Crafty Ltd is an online retailer of a broad range of art and craft products. You are an audit senior at the firm Star Wars & Co and are planning the financial report audit for the year ended 30 June 2020. The Crafty is a new client to your firm and this is the first year end since you were appointed. The following information was obtained from a meeting with the CEO, Katrina Maglanque.
The company has managed to ride a wave of renewed interest by younger people in arts and crafts and the revenue for 2020 is approximately $3.2 million. This continues a trend that has seen revenue increase by between 20% and 30% consistently for the six years since the company was started by Katrina and her tennis partner Jade Garrard who is the COO. Profits in 2020 are $0.2 million and have not increased significantly in four years despite the increased turnover. In 2016 there are plans to broaden the range of products sold to include bedding, curtains and household furnishings.
Rapid expansion has put pressure on the company’s various systems, not least of which is the online sales order system. The Crafty do not have their own in-house IT function relying on Katrina’s sister Kristine who is responsible for accounting, IT, HR, payroll and general office management.
You are aware that in previous years errors had been detected at the audit stage, partly due to IT system errors and partly due to Kristine’s inexperience as an accountant. Katrina and Kristine are confident that any errors in the financial report will be immaterial and not worth investigating given how busy they are with the growing business.
As part of the growth of the business the company is looking to raise additional bank borrowings to fund more warehouse space and invest in improvements to the IT systems. Katrina has indicated that she needs the audit report signed before 15 September which is when she will be meeting the bank to discuss the details of the loan. Based on the above information, identify and explain five (5) issues that give rise to risks for the financial report external audit you are about to commence.
Based on the above information, identify and explain five (5) issues that give rise to risks for the financial report external audit you are about to commence.
In: Accounting
On 1 November 2018, ACP imported a new multi-colour printing machine (No-10) for $68,300 cash. In addition, ACP paid $6,500 of import duties and $1,200 of transport costs for the machine on 3 November 2018. The useful life of the machine and the residual value were estimated to be 8 years and $7,000 respectively. ACP decides to depreciate the machine using a straight-line basis. The company’s financial year-end is 30 June.
On 30 June 2019, Auckland City Printers revalued the machine to $73,000 following a review by an independent valuer.
On 1 July 2019, due to the changes in technology caused the company to revise the estimated useful life of the printing machine from 8 years to 6 years. On the same day, it was also determined that the residual value of the machine is nil.
On 30 June 2020, the printing machine has been revalued at a fair value of $55,200.
On 30 September 2020, the accountant believes that the value of the printing machine has declined substantially. The value in use is nil, but it is estimated that the company may be able to sell the printing machine for $35,000 to a purchaser and the costs associated with making the sale would be $2,000.
On 1 October 2020, Auckland City Printers sold the printing machine for $32,000 cash.
Required:
(a) Prepare relevant journal entries to record the depreciation expense for the year ended 30 June 2019 and revaluation entries on 30 June 2019.
(b) Prepare relevant journal entries to record the
depreciation the year ended 30 June 2020 and revaluation entries on
30 June 2020.
(c) Explain the accounting treatment for the transaction on 30
September 2020 in respect of the printing machine with reference to
the relevant accounting standards. Prepare the journal entry
required.
(d) Prepare the journal entry required on 1 October 2020 to
reflect the disposal of the printing machine. Show all
workings.
In: Accounting
The Unadjusted pre-closing 12/31/2020 account balances for the Mahoney Company are listed below:
|
Net Sales |
$12,540,000 |
|
Net Purchases |
9,000,000 |
|
Selling Expenses |
424,000 |
|
Cash |
487,000 |
|
Machines |
6,019,000 |
|
Accumulated Depreciation, Machines |
2,154,000 |
|
Accounts Payable |
1,445,000 |
|
Retained Earnings |
4,182,000 |
|
Allowance for Doubtful Accounts |
60,000 |
|
Building |
4,800,000 |
|
Accumulated Depreciation, Building |
468,000 |
|
Common Stock |
4,760,000 |
|
Accounts Receivable |
2,877,000 |
|
Depreciation Expense, Machines |
1,077,000 |
|
Inventory @ 1/1/2020 |
925,000 |
During your audit, you discover the following four items that have yet to be recorded:
1) No depreciation on the building has been recorded for 2020. Depreciation on the building is based on Double-Declining Balance. It was purchased on 1/1/18 and has an estimated useful life of 40 years. The estimated salvage value is $1,000,000.
2) Mahoney exhanged a machine for a similar machine on 12/31/2020. The origianl machine cost $3,429,000 and has a book value of $2,134,000. The new machine had a fair value of $1,823,000; Mahoney also received $511,000 in cash. The exchange lacked commercial substance.
3) Mahoney uses the Income Statement approach to record Bad Debts. Bad Debts in 2020 are estimate to be 4% of Sales.
4) Ending Inventory is to be estimated using the Gross Profit Method. The historic Gross Profit percentage is 20%.
Required
A) Record journal entries for items #1-3 above; show supporting computations. In addition, compute ending inventory per #4 above; show supporting computations. Assume adjusting/closing entries to adjust inventory, closing Purchases, and Record Cost of Goods Sold were properly made.
B) Draft the 2020 Condensed Income Statement and the 12/31/2020 Balance Sheet. Assume no Taxes. Do not include Earnings Per Share.
In: Accounting
Question: Mr Ahmed
Kumar runs a snack distribution business located in the Light
Industrial area in Lusaka....
Mr Ahmed Kumar runs a snack distribution business located in the
Light Industrial area in Lusaka. The following list of balances was
extracted from his ledger as at 31 March, 2020; the end of his most
recent financial year.
K
Capital 83,887
Sales 259,870
Trade accounts payable 19,840
Returns outwards 13,407
Allowance for doubtful debts 512
Discounts allowed 2,306
Discounts received 1,750
Purchases 135,680
Returns inwards 5,624
Carriage outwards 4,562
Drawings 18,440
Carriage inwards 11,830
Rent, rates and insurance 25,973
Heating and lighting 11,010
Postage, stationery and telephone 2,410
Advertising 5,980
Salaries and wages 38,521
Bad debts 2,008
Cash in hand 534
Cash at bank 4,440
Inventory as at 1st April 2019 15,654
Trade accounts receivable 24,500
Fixtures and fittings - at cost 120,740
Prov. for depreciation on fixtures and fittings – 31/03/2020 63,020
Depreciation 12,074
The following additional information as at 31st March, 2020 is available:
(a) Inventory at the close of business was valued at K17,750
(b) Insurances have been prepaid by K1,120
(c) Heating and lighting is accrued by K1,360
(d) Rates have been prepaid by K5,435
(e) The allowance for doubtful debts is to be adjusted so that it is 3% of trade accounts receivable.
Required:
For the year 2020, prepare Mr Kumar’s:
Unadjusted Trial Balance as at 31st March,
2020.
[10
Marks]
General Journal recording the adjustments highlighted
above.
[10
Marks]
Trading, Profit or Loss statement for the year ended
31st March, 2020.
[10 Marks]
Statement of financial position as at 31st
March, 2020.
[10
Marks]
[
In: Accounting