Milano Pizza is a small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria’s owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made.

The pizzeria’s cost formulas appear below:

In November, the pizzeria budgeted for 2,040 pizzas at an average selling price of $15 per pizza and for 220 deliveries.

Data concerning the pizzeria’s actual results in November appear below:

Required:

1. Compute the revenue and spending variances for the pizzeria for November. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Hogan Company uses the net method of accounting for sales discounts. Hogan offers trade discounts to various groups of buyers.

On August 1, 2021, Hogan factored some accounts receivable on a without recourse basis. Hogan incurred a finance charge.

Hogan also has some notes receivable bearing an appropriate rate of interest. The principal and total interest are due at maturity. The notes were received on October 1, 2021, and mature on September 30, 2022. Hogan’s operating cycle is less than one year.

Required:

1a. Using the net method, do sales discounts affect the amount recorded as sales revenue and accounts receivable at the time of sale? YES/NO?
1b. Using the net method, is there an effect on Hogan’s sales revenues and net income when customers do not take the sales discounts? YES/NO?
2. Do trade discounts affect the amount recorded as sales revenue and accounts receivable? YES/NO
3. Should Hogan decrease accounts receivable to account for the receivables factored on August 1, 2021? YES/NO
4. Hogan should report the face amount of the interest-bearing notes receivable and the related interest receivable for the period from October 1 through December 31 on its balance sheet as: CURRENT ASSETS/ NON-CURRENT ASSETS?

EXERCISE 4.7

Preparing Various Adjusting Entries

Sweeney & Allen, a large marketing firm, adjusts its accounts at the end of each month. The following information is available for the year ending December 31.

1. A bank loan had been obtained on December 1. Accrued interest on the loan at December 31 amounts to $1,500. No interest expense has yet been recorded.

2. Depreciation of the firm’s office building is based on an estimated life of 30 years. The building was purchased four years ago for $450,000.

3. Accrued, but unbilled, revenue during December amounts to $75,000.

4. On March 1, the firm paid $2,400 to renew a 12-month insurance policy. The entire amount was recorded as Prepaid Insurance.

5. The firm received $15,000 from King Biscuit Company in advance of developing a six-month marketing campaign. The entire amount was initially recorded as Unearned Revenue. At December 31, $9,000 had actually been earned by the firm.

6. The company’s policy is to pay its employees every Friday. Since December 31 fell on a Wednesday, there was an accrued liability for salaries amounting to $1,900.

1. Record the necessary adjusting journal entries on December 31.page 175

2. By how much did Sweeney & Allen’s net income increase or decrease as a result of the adjusting entries performed in part a? (Ignore income taxes.)

Counting Crows Ltd. provided the following information for the year 2019.

Retained earnings, January 1, 2019 £ 600,000

Administrative expenses 240,000

Selling expenses 300,000

Sales revenue 1,900,000

Cash dividends declared 80,000

Cost of goods sold 850,000

Gain on sale of investments 62,700

Loss on discontinued operations 75,000

Rent revenue 40,000

Unrealized holding gain on non-trading equity securities 17,000

Income tax applicable to continuing operations 187,000

Income tax benefit applicable to loss on discontinued operations 25,500

Income tax applicable to unrealized holding gain on non-trading equity securities 2,000

Weighted-average shares outstanding 100,000

Accounting

Prepare (a) an income statement for 2019, (b) a retained earnings statement for 2019, and (c) a statement of comprehensive income using the two statement format.

Analysis

Explain how income statement subheads can provide useful information to financial statement readers.

Principles

In a recent meeting with its auditor, Counting Crows' management argued that the company should be able to prepare a pro forma income statement, with some one-time administrative expenses reported similar to discontinued operations. Is such reporting consistent with the qualitative characteristics of accounting information as discussed in the Conceptual Framework? Explain.

Stolte Trimble Corporation (STC) uses a perpetual inventory system. At the beginning of May, STC had 30 units of inventory, of which 10 units were purchased in March for $60 per unit and 20 units were purchased in April for $66 per unit. STC uses its perpetual inventory system to account for the following transactions.

Required:
Assume STC uses FIFO in its perpetual inventory system. Prepare the journal entry for each transaction.

Emily Valley is a licensed dentist. During the first month of operation of her business, the following events and transactions occurred.

Journalize transactions, post, and prepare a trial balance.

Emily uses the following chart of accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126 Supplies, No. 201 Accounts Payable, No. 209 Unearned Revenue, No. 301 E. Valley, Capital, No. 400 Service Revenue, No. 726 Salaries Expense, and No. 729 Rent Expense.

Instructions

a. Journalize the transactions.

b. Post the journal entries to the ledger accounts. (Use the ledger format provided in Illustration 2.20.)

c. Prepare a trial balance at April 30, 2021.

1. Ally Cupcakes received a deposit for work in advance for 3000 in May.

1. Record the transaction for this deposit received in May.

2. During the month of June, some work was completed and 700 can now be recorded as revenue. What adjustment should be recorded to the accounting equation to properly state the accounts at June 30 (include account and dollar amt)?

3. If the above adjustment is not recorded at the end of the month, June revenue will be ________________________, liabilities will be ___________________, and net income will be ________________________ (indicate understated or overstated for all 3)

2. The supplies account of Lemon Corp. on Dec 31 shows a balance of $4,000. An actual count of the supplies shows the balance is $3,400.

1. What should be recorded to the accounting equation to adjust the balance in the supplies account to properly reflect the balance at Dec 31?

2. If the above transaction is not recorded at the end of the month, Dec. assets will be ___________________, expenses will be ______________________, and net income will be _______________________ (indicate understated or overstated for all 3)

3. At the end of the October, Bob's Bakery. owes employee wages of $750, but hasn’t paid them (they will be paid in Nov.)

1. What should be recorded to the accounting equation to account for the wages that are owed?

2. If the above transaction is not recorded at the end of the month, Oct. expenses will be _______________________, liabilities will be _________________________, and net income will be _______________________ (indicate understated or overstated for all 3)

"A firm is considering purchasing a new milling machine and has collected the following information for its income statement and cash flow statement. However, this income statement was calculated as if there is no inflation! All dollars are expressed in constant (year-0) dollars. Recalculate the income and cash flow statement by assuming there is a general (average) inflation of 4.8% applied to revenue, O&M, and salvage value.
- The firm will pay back the loan in 2 years, and the annual loan payment is $12,815.
- The tax rate is 30%.
- The revenue for year 1 is $30,000 and $22,000 for year 2.
- O&M for year 1 is $9,000 and $11,900 for year 2.
- The interest paid on the debt is $1726 for year 1 and $894 for year 2.
- The taxable income is $10,843 for year 1 and $1,981 for year 2.
- The income taxes are $3,253 for year 1 and $594 for year 2.
- The milling machine costs $59,000.
- The salvage value at the end of year 2 is $47,000.
Calculate the IRR of the cash flow based on actual dollars. Express your answer as a percentage between 0 and 100.
You should calculate the depreciation based on the information given in the problem, but do not refer to the MACRS table. You will also need to calculate the amount that is borrowed and that goes to the principal on the debt in years 1 and 2."

Keystone Development (KD) began operations in October, 2019 and adopted ASPE-future tax method.

When property is sold on an instalment basis, KD recognizes instalment income for accounting purposes in the year of the sale. For tax purposes, instalment income is recognized as cash collections relating to the properties are made. Gross profit from instalment sales for 2019 was $600,000 and will result in taxable revenue as collections are made over the next three years (with the respective tax rates) as follows:

                                2020                       $150,000              30%

                                2021                       $250,000              40%

                                2022                       $200,000              40%

KD also had product warranty expenses for accounting purposes in 2019 of $80,000 of which only $20,000 was paid in cash (tax deductibility is only for cash payments) with the balance to be paid over the next three years as follows:

                                2020                       $20,000

                                2021                       $25,000

                                2022                       $15,000

Pretax accounting income for 2019 was $810,000 which included dividend revenue from taxable Canadian corporations of $10,000 which is not taxable. The tax rate in 2019 is 30%.

Required:

1. Prepare the appropriate journal entry to record KD’s 2019 income taxes.
2. Provide the income statement excerpt for KD beginning with net income before tax for 2019.
3. How should the future income tax amounts be classified in the balance sheet at December 31, 2019?