The following data relate to the operations of love Company, a wholesale distributor of consumer goods:

1. The gross margin is 25% of sales.

2. Actual and budgeted sales data:

3. Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.

4. Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.

5. One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.

6. Monthly expenses are as follows: commissions, 12% of sales; rent, $4,000 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $783 per month (includes depreciation on new assets).

7. Equipment costing $3,200 will be purchased for cash in April.

8. Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

Using the preceding data:

Prepare a balance sheet as of June 30.

a) Hank Co. recently opened a new state of the art, high tech manufacturing plant, and management made the decision to install a just in time production system. How would labor costs, overhead costs and work in process inventory levels at this plant respectively compare with those at other Fulton facilities?

a. lower, higher, higher b. lower, lower, lower   c. lower, higher, lower   d. higher, higher, higher   e. higher, lower, higher

b) Crystal Industries began June with a finished good inventory of $13,000. The finished goods inventory at the end of June was $10,000 and the the cost of goods sold during the month was $20,000. The cost of goods manufactured during June was:

a. $17,000 b. $20,000 c. 27,000 d. $7,000

c) In July, Candle Co. produced 4,000 bags at a total cost of $110,000. In June, it produced 2,500 bags at a total cost of $87,500. In May, it produced 2,500 bags at a total cost of $89,000. Using the High Low method, what was the unit variable cost of producing a bag?

d) Andy Co. sells a single product at $20 per unit. The firm's most recent income statement revealed unit sales of 100,000, variable costs of $800,000, and fixed costs of $400,000. If a $4 drop in selling price will boost unit sales volume by 20% the company will experience:

a. $400,000 drop in profitability b. $80,000 drop in profitability c. $240,000 drop in profitability d. no change in profit

e) Candy Inc. recently sold goods that cost $35,000 for $45,000 cash. The journal entries to record this transaction would include:

a. debit to accounts receivable for $45,000 b. credit to sales revenue for $45,000 c. debit for finished goods inventory for $35,000

d. credit to work in process inventory for $35,000 e. credit cost of goods sold for $35,000

f) At a production and sales level of 3,000 units, Candle Co. incurred $60,000 of total fixed costs and $36,000 of total variable costs. When 4,000 units of product are produced and sold the company's cost per unit is:

a. $32 b. $24 c. $27 d. $29

g) Hank Co reported the following data for the year just ended: sales revenue, $790,000; cost of goods sold, $450,000; cost of goods manufactured, $380,000; and selling and administrative expenses, $125,000. National's operating income (or loss) would be $___?

h) Gary, Inc applies manufacturing overhead at the rate of $40 per machine hour. Budgeted machine hours for the current period were anticipated to be 70,000; however a lengthy strike resulted in actual machine hours being worked of only 55,000. Budgeted and actual manufacturing overhead for the year were $2,800,000 and $2,150,000. How much was the company 's year end overhead mis-applied (under or over applied)?

Conrad Playground Supply underwent a restructuring in 2021. The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries are prepared.

1. Additional computers were acquired at the beginning of 2019 and added to the company’s office network. The $49,500 cost of the computers was inadvertently recorded as maintenance expense. Computers have five-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method.
2. Two weeks prior to the audit, the company paid $21,500 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later.
3. On December 31, 2020, merchandise inventory was understated by $87,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system.
4. Two years earlier, the company recorded a 4% stock dividend (2,900 common shares, $1 par) as follows:

The shares had a market price at the time of $12 per share.

5. At the end of 2020, the company failed to accrue $122,000 of interest expense that accrued during the last four months of 2020 on bonds payable. The bonds, which were issued at face value, mature in 2025. The following entry was recorded on March 1, 2021, when the semiannual interest was paid, as well as on September 1 of each year:

6. A three-year liability insurance policy was purchased at the beginning of 2020 for $74,700. The full premium was debited to insurance expense at the time.

Required:
For each error, prepare any journal entry necessary to correct the error, as well as any year-end adjusting entry for 2021 related to the situation described. (Ignore income taxes.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Conrad Playground Supply underwent a restructuring in 2021. The company conducted a thorough internal audit, during which the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries are prepared.

1. Additional computers were acquired at the beginning of 2019 and added to the company’s office network. The $46,000 cost of the computers was inadvertently recorded as maintenance expense. Computers have five-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method.
2. Two weeks prior to the audit, the company paid $18,000 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later.
3. On December 31, 2020, merchandise inventory was understated by $80,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system.
4. Two years earlier, the company recorded a 5% stock dividend (2,200 common shares, $1 par) as follows:

The shares had a market price at the time of $11 per share.

5. At the end of 2020, the company failed to accrue $108,000 of interest expense that accrued during the last four months of 2020 on bonds payable. The bonds, which were issued at face value, mature in 2025. The following entry was recorded on March 1, 2021, when the semiannual interest was paid, as well as on September 1 of each year:

6. A three-year liability insurance policy was purchased at the beginning of 2020 for $72,600. The full premium was debited to insurance expense at the time.

Required:
For each error, prepare any journal entry necessary to correct the error, as well as any year-end adjusting entry for 2021 related to the situation described. (Ignore income taxes.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Johnson Transformers Inc.

Following is the seven-year forecast for a new venture called Johnson Transformers: (all amounts in $000)

Beginning after year 2026 the annual growth in EBIT is expected to be 1.5%, a rate that is projected to be constant over Johnson Transformers remaining life as an enterprise.   Beginning in 2026 Johnson's Transformers capital expenditures and depreciation are expected to offset each other (capex - depreciation = 0) and year to year changes in working capital are expected to be zero (working capital levels remain constant year over year). For discounting purposes consider 2020 as year 1.

Assume a tax rate is 21% and a cost of capital of 7.75%

Question 1: Determine the NPV of Johnson Transformers Free Cash Flow for the years 2020 -2026. HINT: Remember to account for loss carry-forwards when determining income taxes. The answer to this question was determined in Excel. Your answer may deviate slightly depending upon differences in truncation and rounding. Answers below are in $000.

Answer: $2105

Calculate the fair market value (NPV) for Johnson Transformers. For this problem assume that the Net Present Value of Johnson Transformers free cash flow for the period 2020 - 2026 is $3000 (NOTE its not $3000 but make this assumption in case the answer you determined in the first question was incorrect. Assume no underlying changes to any of the data in the problem. DO NOT USE YOUR ANSWER FROM THE QUESTION ABOVE. All ANSWERS ARE IN $000

Part 1

Johnson Transformers Inc. Following is the seven-year forecast for a new venture called Johnson Transformers: (all amounts in $000) 2020 2021 2022 2023 2024 2025 2026 EBIT $(1000) $(900) $200 $1,200 $2,500 $3000 $3,050 Capital Expenditures $550 $350 $200 $175 $175 $160 $150 Changes in Working Capital $400 $300 $200 $100 $100 ($100) ($100) Depreciation $40 $80 $125 $150 $150 $150 $150 Beginning after year 2026 the annual growth in EBIT is expected to be 1.5%, a rate that is projected to be constant over Johnson Transformers remaining life as an enterprise. Beginning in 2026 Johnson's Transformers capital expenditures and depreciation are expected to offset each other (capex - depreciation = 0) and year to year changes in working capital are expected to be zero (working capital levels remain constant year over year). For discounting purposes consider 2020 as year 1. Assume a tax rate is 21% and a cost of capital of 7.75% Question 1: Determine the NPV of Johnson Transformers Free Cash Flow for the years 2020 -2026. HINT: Remember to account for loss carry-forwards when determining income taxes. The answer to this question was determined in Excel. Your answer may deviate slightly depending upon differences in truncation and rounding. Answers below are in $000.

Part 2

Calculate the fair market value (NPV) for Johnson Transformers. For this problem assume that the Net Present Value of Johnson Transformers free cash flow for the period 2020 - 2026 is $3000 (NOTE its not $3000 but make this assumption in case the answer you determined in the first question was incorrect. Assume no underlying changes to any of the data in the problem. DO NOT USE YOUR ANSWER FROM THE QUESTION ABOVE. All ANSWERS ARE IN $000

Railback Battery Systems Following is the seven-year forecast for a new venture called Railback Battery Systems:

Part 1:

Beginning after year 2026 the annual growth in EBIT is expected to be 1.5%, a rate that is projected to be constant over Railback's life as an enterprise. Beginning in 2026 Railback's capital expenditures and depreciation are expected to offset each other (capex - depreciation = 0) and year to year changes in working capital are expected to be zero (working capital levels remain constant year over year). For discounting purposes consider 2020 as year 1. Assume a tax rate is 21% and a cost of capital of 7.75% Question: Determine the NPV of Railback Battery Systems Free Cash Flow for the years 2020 - 2026. HINT: Remember to account for loss carry-forwards when determining income taxes. The answer to this question was determined in Excel. Your answer may deviate slightly depending upon differences in truncation and rounding. Answers below are in $000.

Part 2:

Calculate the fair market value (NPV) for Railback Battery Systems. For this problem assume that the Net Present Value of Railback's free cash flow for the period 2020 - 2026 is $3000 (NOTE its not $3000 but make this assumption in case the answer you determined in the first question was incorrect. Assume no underlying changes to any of the data in the problem. DO NOT USE YOUR ANSWER FROM THE QUESTION ABOVE. All ANSWERS ARE IN $000

1.

The _____ perspective of the Balanced Scorecard management system describes the economic consequences of actions taken in the other three perspectives.

a.customer

b.internal

c.financial

d.learning and growth

2.

Which of the following is true of centralized decision making?

a.Managers at the lower level are not allowed to implement the decisions made.

b.Decisions are made at the very top level of management.

c.Managers at the lower level are allowed to make and implement key decisions.

d.Decision-making authority for a responsibility center is delegated to its lower level managers.

3.

Consider the following information for the manufacturing cell of Stripes Company:

Compute the theoretical velocity and the actual velocity in units per hour.

a.Theoretical velocity is 6 units per hour, and actual velocity is 5 units per hour.

b.Theoretical velocity is 6 units per hour, and actual velocity is 7 units per hour.

c.Theoretical velocity is 7 units per hour, and actual velocity is 6 units per hour.

d.Theoretical velocity is 7 units per hour, and actual velocity is 5 units per hour.

4.

Which of the following is true of residual income?

a.If residual income is less than zero, then the division is earning more than the minimum required rate of return.

b.If residual income is less than zero, then the division is earning more than the market rate of return.

c.If residual income is less than zero, then the division is earning less than the minimum required rate of return.

d.If residual income is less than zero, then the division is earning less than the market rate of return.

5.

_____ is the difference between operating income and the minimum dollar return required on a company's operating assets.

a.Economic value added

b.Non-recurring income

c.Residual income

d.Minimum rate of return

6.

Which of the following statements is true of a negotiated transfer price?

a.A negotiated transfer price is useful in case an in-house division has to incur additional selling and distribution costs than external market participants.

b.A negotiated transfer price results from the negotiation between the selling department and the top management.

c.A negotiated transfer price results from the negotiation between the buying department and the top management.

d.A negotiated transfer price allows the selling and buying divisions to share any cost savings resulting from avoided costs.

7.

Which of the following is affected by the price charged for goods transferred between two divisions of a company that are both treated as responsibility centers?

a.Costs of the selling division alone

b.Market price of the product

c.Profits of both the selling and buying divisions

d.Demand for the product in the external market

Under applied over head
14,000
Finished goods inventory, beginning
310,000
Finished goods inventory, ending
380,000
Raw materials inventory, beginning
110,000
Raw materials inventory, ending
95,000
Work in process inventory, beginning
105,000
Work in process inventory, ending
85,000
Selling expenses
180,000
Manufacturing overhead Applied
490,000
Direct labor
390,000
Administrative expenses
385,000
Purchases of raw materials
295,000
Sales
2,885,000



Required:

1) Prepare a schedule of Cost of Goods Sold for the year in good form? (Use the table given in the answer box.

Based on the Cost of Goods schedule you prepared identify:
2a) The Product Costs

Based on the Cost of Goods schedule you prepared identify:
2b) The Period costs