Section B –Answer ALL Questions: 50 Marks

Question 1: 20 Marks

Superior Manufacturing Company has the following cost and expense data for the year ending December 31, 2016:

Raw materials, January 1 $30,000 Insurance—factory $ 14,000

Raw materials, December 31 20,000 Property taxes—factory building 6,000

Raw materials purchased 205,000 Sales (net) 1,500,000

Indirect materials 15,000 Delivery expenses 100,000

Work in process, January 1 80,000 Sales commissions 150,000

Work in process, December 31 50,000 Indirect labour 90,000

Finished goods, January 1 110,000 Factory machinery rent 40,000

Finished goods, December 31 120,000 Factory utilities 65,000

Direct labour 350,000 Depreciation—factory building 24,000

Factory manager's salary 35,000 Administrative expenses 300,000

Instructions

(a) Prepare a cost of goods manufactured schedule for Superior Manufacturing Company for 2016 –

(b) Prepare an income statement for Superior Manufacturing Company for 2016 –

Professional Fees Earned Budget for a Service Company

Roberts and Chou, CPAs, offer three types of services to clients: auditing, tax, and small business accounting. Based on experience and projected growth, the following billable hours have been estimated for the year ending December 31, 2016:

The average billing rate for staff is $150 per hour, and the average billing rate for partners is $270 per hour.

Prepare a professional fees earned budget for Roberts and Chou, CPAs, for the year ending December 31, 2016.

Professional Labor Cost Budget for a Service Company

Roberts and Chou, CPAs, offer three types of services to clients: auditing, tax, and small business accounting. Based on experience and projected growth, the following billable hours have been estimated for the year ending December 31, 2016:

Based on the data provided above and assuming that the average compensation per hour for staff is $40 and for partners is $135, prepare a professional labor cost budget for each department for Roberts and Chou, CPAs, for the year ending December 31, 2016.

Milberg Co. uses absorption costing and standard costing to improve cost control.

In 2016, the total budgeted overhead rate was $1.55 per direct labour hour. When preparing the budget, Milberg expected a monthly activity level of 10,000 direct labour hours. The monthly variable overhead cost budgeted for this level of activity was $9,500.

The following data on actual results are provided for the month of November 2016.

Instructions

Identify and calculate as many different variances as you can for 2016.

(adapted from CGA-Canada, now CPA Canada)

LPV=$ 1500 F

Schedule of Cash Collections of Accounts Receivable

Office World Inc. has "cash and carry" customers and credit customers. Office World estimates that 25% of monthly sales are to cash customers, while the remaining sales are to credit customers. Of the credit customers, 25% pay their accounts in the month of sale, while the remaining 75% pay their accounts in the month following the month of sale. Projected sales for the next three months of 2016 are as follows:

The Accounts Receivable balance on July 31, 2016, was $76,000.

Prepare a schedule of cash collections from sales for August, September, and October. Round all calculations to the nearest whole dollar.

Supplies, unearned revenue, and the financial statements model
Hart, Attorney at Law, experienced the following transactions in 2016, the first year of operations:
1. Accepted $36,000 on April 1, 2016, as a retainer for services to be performed evenly over the next 12 months.
2. Performed legal services for cash of $54,000.
3. Purchased $2,800 of office supplies on account.
4. Paid $2,400 of the amount due on accounts payable.
5. Paid cash dividend to the stockholders of $5,000.
6. Paid cash for operating expenses of $31,000.
7. Determined that at the end of the accounting period $200 of office supplies remained on hand.
8. On December 31, 2016, recognized the revenue that had been earned for services performed in accordance with Transaction 1.
Required
Show the effects of the events on the financial statements using a horizontal statements model like the following one. In the Cash Flows column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity, and NC for net change in cash. Use NA to indicate accounts not affected by the event.

Suppose Mats Sundin decided to make another comeback with the Toronto Maple Leafs in 2016. The Leafs offer him a two-year contract in January 2016 with the following provisions:  

Assume that Mats achieved his bonus requirements both years and he signed the contract right away on January 1, 2016. Assume that cash flows are discounted at 11.6 percent. Ignore any taxes. Mats’ signing bonus was paid on the day the contract was signed. His salary and bonuses, other than the signing bonus, are paid at the end of the year. What was the PV of this contract in January when Mats signed it? (Do not round intermediate calculations. Round the answer to 2 decimal places. Omit $ sign in your response.)

    5. On the date of the balance sheet, Armani Co. had $10,000 of inventory in transit to Saks Company via a public carrier. A) Should Armani include the inventory if the terms were FOB Shipping Point? B) If the terms were FOB Destination should Armani include the inventory?

6. The following information was taken from Taylor Enterprises. The following two errors were made in the physical inventory counts:
   1. 2015 ending inventory was understated by $7000
   2. 2016 ending inventory was overstated by $3000
   3. Compute the correct Cost of goods sold for both 2015 and 2016

                                                                           2016               2015

     Beginning Inventory                                                  $60,000          $50,000

     Cost of good purchased                                             420,000          400,000

     Ending Inventory                                                          55,000            60,000

     Cost of goods sold                                                     $425,000         $390,000

Nucor Corporation produces steel and steel products at its eight mills and is a major recycler of scrap metal. The following data relate to Nucor for four years. In 2017, Nucor’s net income was higher by $175.2 million because of a one-time effect of the Tax Cuts and Jobs Act.

Required:

In the following analyses, eliminate the one-time net income effect of the Tax Cuts and Jobs Act on 2017’s results.

1. Calculate Nucor’s ROA for 2016, 2017, and 2018.
2. Decompose ROA into operating profit margin and asset turnover components.
3. Has Nucor’s profitability changed over the three years?
4. Calculate the rate of return on common stockholders’ equity for 2016, 2017, and 2018.

Problem 3

Below, you are provided with two years of data on the quantities of two goods that the average, urban family offour consumes and the market price of each. You will use these data to calculate the Consumer Price Index (CPI) and inflation rate.

Cheese and Chocolate are two goods that are consumed in Holland. Many other final goods and services areconsumed in Holland, but for simplicity, we will assume that Cheese and Chocolate are the only two final goodsconsumed in the country. The table below provides the quantity of Cheese and Chocolate that are consumed bythe average, urban family of four in Holland in two different years. The table also provides the price of a Cheeseand the price of chocolate in each year.

Suppose that 2016 is the base year.

1. Calculate the CPI in 2016 and 2017. Round your answer to the nearest one-hundredth.
2. Calculate the 2017 inflation rate. Round your answer to the nearest one-tenth of one percent.