please don't skip any step/part or give me half answer I'll rate

You are working for The Wellington Company on temporary assignment while one of the accountants is on family leave. You have been asked to review the company’s investment journal entries and provide necessary information to the accountant preparing the financial statements.

PAGE 8

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Jan. 17	Investments-Red Rock Co. Stock		38,500.00		?
2		Cash			38,500.00	?
3	Feb. 5	Investments-Sunset Village Bonds		35,000.00		?
4		Interest Receivable		300.00		?
5		Cash			35,300.00	?
6	23	Investments-Mays and Co. Stock		26,250.00		?
7		Cash			26,250.00	?
8	Mar. 31	Cash		350.00		?
9		Interest Receivable			300.00	?
10		Interest Revenue			50.00			?
11	Apr. 6	Investment in Minions Corp. Stock		175,000.00		?
12		Cash			175,000.00	?
13	30	Cash		750.00		?
14		Dividend Revenue			750.00			?
15	Jul. 1	Cash		18,690.00		?
16		Loss on Sale of Investment		2,520.00				?
17		Interest Revenue			210.00			?
18		Investments-Sunset Village Bonds			21,000.00	?
19	Aug. 14	Cash		41,300.00		?
20		Gain on Sale of Investments			1,800.00			?
21		Investments-Harding Construction Stock			39,500.00	?
22	27	Cash		3,500.00		?
23		Investment in Minions Corp. Stock			3,500.00	?
24	Sep. 22	Cash		29,750.00		?
25		Gain on Sale of Investments			3,500.00			?
26		Investments-Mays and Co. Stock			26,250.00	?
27	30	Cash		140.00		?
28		Interest Revenue			140.00			?
29	Nov. 1	Investment in Minions Corp. Stock		15,750.00		?
30		Income of Minions Corp.			15,750.00			?
31	Dec. 31	Unrealized Loss on Available-For-Sale Investments		3,275.00				?
32		Valuation Allowance for Available-For-Sale Investments			3,275.00	?
33	31	Valuation Allowance for Trading Investments		2,150.00		?
34		Unrealized Gain on Trading Investments			2,150.00			?

Investments

Review the journal entries on The Wellington Company panel then answer the following questions.

1.	Which item is likely to be a trading security? Why?
2.	How are brokerage commission fees treated on stock sales vs. stock purchases?
3.	Based on these journal entries, what is the company’s investment in Sunset Village bonds at the end of the year?
4.	The journal entry on Aug. 27 most likely shows
5.	As an investment, bonds are always categorized as
6.	What is the company’s investment in Minions Corp. at the end of the year?

7. Which of the following investments are likely to be available-for-sale securities? Check all that apply.

Harding Construction stock

Mays and Co. stock

Cannot be determined

Red Rock Co. stock

Sunset Village bonds

Minions Corp. stock

Financial Statements and Valuation

The accountant preparing the financial statements has asked you to provide the fair value as of the end of the year for the investments. Present the information as it would be shown on the financial statements. Last year, The Wellington Company reported costs of $68,000 in trading investments and $82,000 in available-for-sale investments. Refer to the journal entries shown on The Wellington Company panel. Assume that all investments sold during this year were trading investments and that purchases during the year were new investments.

1. Select the correct label for each line and fill in the amount. In classifying the investments, choose a categorization which seems most likely, given the pattern of transactions in the journal entries. Enter all amounts as positive numbers. If an amount box does not require an entry, leave it blank.

Trading Securities

Available-For-Sale Securities

	2. Where on the balance sheet do trading securities appear?
	3. Where is the gain or loss from the change in value of available-for-sale securities reported in the financial statements?
	4. Where are held-to-maturity securities reported? Based on the journal entries for this year, does the company have any held-to-maturity securities?
	5. Where are securities held for strategic reasons reported in the financial statements when using the equity method? Based on the journal entries for this year, does The Wellington Company have any equity securities?

6. Which of the following items does not affect net income? Check all that apply.

only unrealized gains or losses for all investments

realized loss on available-for-sale securities

realized gain on trading securities

none of these answers is correct

both gains and losses of any sort for all investments

unrealized loss on trading securities

unrealized gain on available-for-sale securities

Mastery Problem: Capital Investment Analysis

HomeGrown Company

HomeGrown Company is a chain of grocery stores that are similar to indoor farmer's markets, providing fresh, local produce, meats, and dairy products to consumers in urban areas. HomeGrown is considering opening several stores in a new city, and has proposals from three contractors (Alpha, Beta, and Gamma companies) who would like to provide buildings for the new stores.

The amount of expected revenue from the stores will depend on the design of the contractor. For example, if HomeGrown decides on a more open floor plan, with less shelf space for products, revenue would be lower overall. However, if HomeGrown decides on a very crowded floor plan, it may lose customers who appreciate a more open feel.

As the project manager for HomeGrown, you are responsible for deciding which if any of the proposals to accept. HomeGrown's minimum acceptable rate of return is 20%. You receive the following data from the three contractors:

Proposal	Type of Floor Plan	Initial Cost if Selected	Residual Value
Alpha	Very open, like an indoor farmer’s market	$1,472,000	$0.00
Beta	Standard grocery shelving and layout, minimal aisle space	5,678,900	0.00
Gamma	Mix of open areas and shelving areas	2,125,560	0.00

You have computed estimates of annual cash flows and average annual income from customers for each of the three contractors' plans. You believe that the annual cash flows will be equal for each of the 10 years for which you are preparing your capital investment analysis. Your conclusions are presented in the following table.

Proposal	Estimated Average Annual Income (after depreciation)	Estimated Average Annual Cash Flow
Alpha	$313,094	$351,145
Beta	272,019	475,608
Gamma	527,245	598,133

Method Comparison

Compare methods of capital investment analysis in the following table to begin your evaluation of the three capital investment proposals Alpha, Beta, and Gamma. You decide to compare four methods: the average rate of return, cash payback period, net present value, and internal rate of return methods.

	Average Rate of Return Method	Cash Payback Method	Net Present Value Method	Internal Rate of Return Method
Considers the time value of money	No	No	Yes	Yes
Does not consider the time value of money	Yes	Yes	No	No
Easy to compute	Yes	Yes	No	No
Not as easy to compute	No	No	Yes	Yes
Directly considers expected cash flows	No	Yes	Yes	Yes
Directly considers timing of expected cash flows	No	No	Yes	Yes
Assumes cash flows can be reinvested at minimum desired rate of return	No	No	Yes	Yes
Can be used to rank proposals even if project lives are not the same	Yes	Yes	No	Yes

Feedback

Review the advantages and disadvantages of each method.

Average Rate of Return

You begin by trying to eliminate any proposals that are not yielding the company’s minimum required rate of return of 20%. Complete the following table, and decide whether Alpha, Beta, and/or Gamma should be eliminated because the average rate of return of their project is less than the company's minimum required rate of return.

Complete the following table. Enter the average rates of return as percentages rounded to two decimal places.

Proposal	Estimated Average Annual Income	Average Investment	Average Rate of Return	Accept or Reject
Alpha	$	$	%	Accept
Beta				Reject
Gamma				Accept

Feedback

Review the definition of average rate of return, and plug the relevant numbers into the formula from the data given.

Cash Payback Method

You’ve decided to confirm your results from the average rate of return by using the cash payback method.

Using the following table, compute the cash payback period of each investment. If required, round the number of years in the cash payback period to a whole number.

Proposal	Initial Cost	Annual Net Cash Inflow	Cash Payback Period in Years
Alpha	$	$
Beta
Gamma

Feedback

Review the definition of cash payback period, and put the relevant numbers into the formula from the data given.

Net Present Value

Even though you’re fairly certain that your evaluation and elimination is correct, you would like to compare the three proposals using the net present value method, and get some data about the internal rate of return of the proposals, each of which are expected to generate their respective annual net cash inflows for a period of 10 years.

Compute the net present value of each proposal. You may need the following partial table of factors for present value of an annuity of $1. Round the present value of annual net cash flows to the nearest dollar. If your answer is zero enter "0". For the net present value, if required, use the minus sign (-) to indicate a negative amount.

Present Value of an Annuity of $1 at Compound Interest (Partial Table)
Year	10%	20%
1	0.909	0.833
5	3.791	2.991
10	6.145	4.192

	Alpha	Beta	Gamma
Annual net cash flow	$	$	$
Present value factor
Present value of annual net cash flows	$	$	$
Amount to be invested
Net present value	$	$	$

The comparative balance sheets for 2021 and 2020 and the income statement for 2021 are given below for Arduous Company. Additional information from Arduous’s accounting records is provided also.

ARDUOUS COMPANY Comparative Balance Sheets December 31, 2021 and 2020 ($ in millions)
	2021				2020
Assets
Cash	$	114			$	86
Accounts receivable		195				204
Investment revenue receivable		12				9
Inventory		213				205
Prepaid insurance		10				18
Long-term investment		172				130
Land		207				155
Buildings and equipment		424				410
Less: Accumulated depreciation		(99	)			(130	)
Patent		33				37
	$	1,281			$	1,124
Liabilities
Accounts payable	$	55			$	75
Salaries payable		12				21
Interest payable (bonds)		14				9
Income tax payable		17				19
Deferred tax liability		21				13
Notes payable		26				0
Lease liability		87				0
Bonds payable		220				285
Less: Discount on bonds		(27	)			(30	)
Shareholders’ Equity
Common stock		445				415
Paid-in capital—excess of par		105				90
Preferred stock		80				0
Retained earnings		240				227
Less: Treasury stock		(14	)			0
	$	1,281			$	1,124

ARDUOUS COMPANY Income Statement For Year Ended December 31, 2021 ($ in millions)
Revenues and gain:
Sales revenue	$	460
Investment revenue		16
Gain on sale of treasury bills		3		$	479
Expenses and loss:
Cost of goods sold		185
Salaries expense		78
Depreciation expense		9
Amortization expense		4
Insurance expense		12
Interest expense		33
Loss on sale of equipment		28
Income tax expense		41			390
Net income				$	89

Additional information from the accounting records:

1. Investment revenue includes Arduous Company’s $12 million share of the net income of Demur Company, an equity method investee.
2. Treasury bills were sold during 2021 at a gain of $3 million. Arduous Company classifies its investments in Treasury bills as cash equivalents.
3. Equipment originally costing $80 million that was one-half depreciated was rendered unusable by a flood. Most major components of the equipment were unharmed and were sold for $12 million.
4. Temporary differences between pretax accounting income and taxable income caused the deferred tax liability to increase by $8 million.
5. The preferred stock of Tory Corporation was purchased for $30 million as a long-term investment.
6. Land costing $52 million was acquired by issuing $26 million cash and a 10%, four-year, $26 million note payable to the seller.
7. The right to use a building was acquired with a 15-year lease agreement; present value of lease payments, $94 million. Annual lease payments of $7 million are paid at the beginning of each year starting January 1, 2021.
8. $65 million of bonds were retired at maturity.
9. In February, Arduous issued a stock dividend (6.0 million shares). The market price of the $5 par value common stock was $7.50 per share at that time.
10. In April, 1 million shares of common stock were repurchased as treasury stock at a cost of $14 million.

Required:
Prepare the statement of cash flows for Arduous Company using the indirect method. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

The comparative balance sheets for 2016 and 2015 and the income statement for 2016 are given below for Arduous Company. Additional information from Arduous’s accounting records is provided also.

ARDUOUS COMPANY Comparative Balance Sheets December 31, 2016 and 2015 ($ in millions)
	2016		2015
Assets
Cash	$	146	$	96
Accounts receivable		205		224
Investment revenue receivable		23		19
Inventory		222		215
Prepaid insurance		21		28
Long-term investment		203		140
Land		241		165
Buildings and equipment		427		430
Less: Accumulated depreciation		(109)		(150)
Patent		43		47
	$	1,422	$	1,214
Liabilities
Accounts payable	$	65	$	95
Salaries payable		23		33
Bond interest payable		25		19
Income tax payable		27		32
Deferred income tax liability		41		23
Notes payable		38		0
Lease liability		97		0
Bonds payable		230		305
Less: Discount on bonds		(37)		(46)
Shareholders’ Equity
Common stock		455		425
Paid-in capital—excess of par		115		100
Preferred stock		90		0
Retained earnings		277		228
Less: Treasury stock		(24)		0
	$	1,422	$	1,214

ARDUOUS COMPANY Income Statement For Year Ended December 31, 2016 ($ in millions)
Revenues and gain:
Sales revenue	$	557
Investment revenue		28
Gain on sale of treasury bills		4		$	589
Expenses and loss:
Cost of goods sold		195
Salaries expense		88
Depreciation expense		9
Patent amortization expense		4
Insurance expense		22
Bond interest expense		43
Loss on machine damage		30
Income tax expense		51			442
Net income				$	147

Additional information from the accounting records:
a.	Investment revenue includes Arduous Company’s $23 million share of the net income of Demur Company, an equity method investee.
b.	Treasury bills were sold during 2016 at a gain of $4 million. Arduous Company classifies its investments in Treasury bills as cash equivalents.
c.	A machine originally costing $100 million that was one-half depreciated was rendered unusable by a flood. Most major components of the machine were unharmed and were sold for $20 million.
d.	Temporary differences between pretax accounting income and taxable income caused the deferred income tax liability to increase by $18 million.
e.	The preferred stock of Tory Corporation was purchased for $40 million as a long-term investment.
f.	Land costing $76 million was acquired by issuing $38 million cash and a 14%, four-year, $38 million note payable to the seller.
g.	The right to use a building was acquired with a 15-year lease agreement; present value of lease payments, $97 million.
h.	$75 million of bonds were retired at maturity.
i.	In February, Arduous issued a stock dividend (4 million shares). The market price of the $5 par value common stock was $7.50 per share at that time.
j.	In April, 1 million shares of common stock were repurchased as treasury stock at a cost of $24 million.

Required:

Prepare the statement of cash flows for Arduous Company using the indirect method. (Amounts to be deducted should be indicated with a minus sign. Do not round your intermediate calculations. Enter your answers in millions (i.e., 10,000,000 should be entered as 10.).)

Case Study

On January 17, 2008, TJX Companies,

Inc., a leading retailer in the field of clothing

and home fashions which operates

stores domestically and internationally,

announced that the organization had

experienced an unauthorized intrusion

of its computer systems.1 Customer

information, including credit card, debit

card, and driver’s license numbers,

had been compromised. This intrusion

had been discovered in December

of 2006, and it was thought that data

and information as far back as 2003 had

been accessed and/or stolen. At the

time, approximately 45.6 million credit

card numbers had been stolen. In October

of 2007, the number rose to 94

million accounts.2 This has become the

largest known credit card theft or unauthorized

intrusion in history.

Because of the lax security systems at

TJX, the hackers had an open doorway to the company’s entire computer system.

In 2005, hackers used a laptop outside

of one of TJX’s stores in Minnesota and

easily cracked the code to enter into the

WiFi network. Once in, the hackers were

able to access customer databases at

the corporate headquarters in Framingham,

Massachusetts. The hackers gained

access to millions of credit card and debit

card numbers, information on refund

transactions, and customer addresses

and phone numbers. The hackers reportedly

used the stolen information to purchase

over $8 million in merchandise.3

TJX used an outdated WEP (wired equivalent

privacy) to secure its networks. In

2001, hackers were able to break the

code of WEPs, which made TJX highly

vulnerable to an intrusion. (Similar data

breaches have occurred within the past

few years at the firms ChoicePoint and

CardSystems Solutions.) In August of

2007, a Ukrainian man, Maksym Yastremskiy,

was arrested in Turkey as a

potential suspect in the TJX case. According

to police officials, Yastremskiy

is “one of the world’s important and

well-known computer pirates.”4 He led

two other men in the scheme.5

Even though the intrusion was discovered

in December of 2006, the company

did not publicize it until a month later.

Consumers felt that they should have

been notified of the breach once it was

discovered. However, TJX complied with

law enforcement and kept the information

confidential until it was told it could

notify the public. Retail companies such

as TJX that use credit card processing

are required to comply with the Payment

Card Industry Data Security Standard

(PCI DSS). The PCI DSS is a set of requirements

with the purpose of maximizing

the security of credit and debit card

transactions. A majority of firms have not

complied with this standard, as was the

case with TJX Companies.

A number of stakeholders were involved

in this break-in: consumers, who were put

at great risk; banks; TJX Companies (its

shareholders, management, employees,

and other internal parties who did business

with and were invested in the firm);

the credit card company; the law enforcement

and justice systems; the public;

other retail firms; and the media, to name

a few. CEO Carol Meyrowitz took an active

role in informing the public in statements

on the company’s Web sites and

through the media about the company’s

responsibility and obligations to its stakeholders

during and after the investigation.

TJX also contacted various agencies to

help with the investigation. A Web site

and hotline were established to answer

customer questions and concerns.

The intrusion cost TJX approximately

$118 million in after-tax cash charges

and $21 million in future charges. Although

TJX incurred substantial legal,

reimbursement, and improvement

costs, the company’s pre-tax sales

were not negatively affected. Sales during

the second quarter of fiscal year

2008 increased compared to second

quarter sales from fiscal year 2007.6

At the end of 2007, TJX reached a settlement

agreement with six banks and

bankers’ associations in response to a

class action lawsuit against the company.

7 In the spring of 2008, TJX settled

in separate agreements with Visa

($40.9 million with 80% acceptance)

and MasterCard International (a maximum

of $24 million with 90% minimum

acceptance). There was almost full acceptance

of the alternative recovery offers

by eligible MasterCard accounts.8

Note that those issuers who accept the

agreements and terms release and indemnify

TJX” and its acquiring banks on

their claims, the claims of their affiliated

issuers, and those of their sponsored

issuers as MasterCard issuers related

to the intrusion. That includes claims

in putative class actions in federal and

Massachusetts state courts.“9

Affected customers were reimbursed

for costs such as replacing their driver’s

license and other forms of identification

and were offered vouchers at TJX stores

and free monitoring of their credit cards

for three years. Customer discontent was

reportedly expressed after the intrusion;

however, customer loyalty returned,10 as

was evidenced in sales numbers. 4.1 MANAGING CORPORATE SOCIAL RESPONSIBILITY

IN THE MARKETPLACE

“Corporate social responsibility” (CSR) involves an organization’s duty and

obligation to respond to its stakeholders’ and the stockholders’ economic,

legal, ethical, and philanthropic concerns and issues.11 This definition

encompasses both the social concerns of stakeholders and the economic

and corporate interests of corporations and their stockholders. Generally,

society cannot function without the economic, social, and philantropic

benefits that corporations provide. Leaders in corporations who use

a stakeholder approach commit to serving broader goals, in addition to

economic and financial interests, of those whom they serve, including the

public.

Managing corporate social responsibility in the marketplace with multiple

stakeholder interests is not easy. As discussed in Chapter 3, ethics

at the personal and professional levels requires reasoned and principled

thinking, as well as creativity and courage. When ethics and social responsibility

escalate to the corporate level, where companies must make

decisions that affect governments, competitors, communities, stockholders,

suppliers, distributors, the public, and customers (who are also consumers),

moral issues increase in complexity, as the TJX security breach

opening case illustrated. For organizational leaders and professionals, the

moral locus of authority involves not only individual conscience but also

corporate governance and laws, collective values, and consequences that

affect millions of people locally, regionally, and globally.

In the opening case, the TJX executives had to deal not only with

their own customers, but with banks (in a class action suit), credit card

companies, the media, competitors, and a network of suppliers and distributors—

as well as their own reputation. What may have seemed like

a routine technical security problem turned into the largest-known credit

card theft/unauthorized intrusion in history. Had the CEO not stepped in

and became a responsible spokesperson and decision maker for the company,

customers may not have responded in kind.

The basis of corporate social responsibility in the marketplace begins

with a question: What is the philosophical and ethical context from which

corporate social responsibilty and ethical decisions are made? For example,

not everyone is convinced that businesses should be as concerned about

ethics and social responsibility as they are about profits. Many believe

that ethics and social responsibility are important, but not as important as a

corporation’s performance. This classical debate—and seeming dichotomy—

between performance, profitability, and “doing the right thing” continues to

surface not only with regard to corporate social responsibility, but also in political

parties and debates over personal and professional ethics. The roots of

corporate social responsibility extend to the topic of what a “free-market” is

and how corporations should operate in free markets. Stated another way,

does the market sufficiently discipline and weed out inefficient “bad apples”

and wrongdoers, thereby saving corporations the costs of having to support

“soft” ethics programs?

A security breach in a technological world is one of the biggest issues facing companies today. Cyber security is a critical consideration for any business but time and time again businesses are faced with the fear of hacking into their customers' information. Review the TJX case in the textbook. What are the ethical issues impacting the TJX case? What are the long term effects and how might this company win back trust?

Prepare in journal entry form all adjusting    and correcting journal entries based on the following information. All information was provided to you as of 12/31/2018.  

m.   Accounting Creations started to lease some new retail space in 2018 and added shelving and fixtures to this leased space. Based on your review of invoices, the previous accountant capitalized the cost of fixtures but did not capitalize the shipping and installation costs of $3,514. These costs were expensed and recorded as a miscellaneous selling expense. Accounting Creations has decided to use double declining balance (DDB) depreciation for this item and to take a full year of depreciation in the year of acquisition. The leasehold improvements have a useful life of 15 years with a salvage value of $15,000.  

n.    Accounting Creations uses the FIFO Inventory Method in valuing inventory. The inventory balance of $425,000 was based on a physical count at 12/31/2018. Based on your analysis, you have noted that $12,500 of marketing games that belonged to Marketing Majors Inc. was included in the account. You also note that $7,000 of goods shipped to Accounting Creations f.o.b. destination were in transit on December 31, 2018 and included in the physical count.

o.    You note during the review of sales, that a rebate was issued for the 2018 Income Tax Game to encourage sales. 34,000 games were sold. Customers can mail in their receipt and receive a $1 rebate per game. It is estimated that 60% of customers will send in the rebate. The rebate expires on January 31, 2019. To date, 8,000 customers have sent in the rebate and $16,000 has been refunded. Without any direction, the accounting clerk debited Miscellaneous Selling Expense and credited Cash for the $16,000. The management of Accounting Creations would prefer to have this type of expense in a separate account (Rebate Expense) so they can properly analyze for future ideas.

Accounting Creations has a straight tax rate of 35%. Income tax expense is Net Income before taxes times 35%. (Hint: Prepare the Income Statement up to Net Income before Taxes and then record this adjusting journal entry.)

ance for Doubtful Accounts	-	17,000
Interest Receivable	-	-
Merchandise Inventory	425,000	-
Prepaid Insurance	-	-
LIFO Reserve	-	32,000
Prepaid Advertising	-	-
Prepaid Rent	17,000	-
Office Supplies	6,000	-
Note Receivable	25,000
Available for Sale Securities	375,000	-
Office Building	3,750,000	-
Accumulated Depreciation - Office Building	-	87,500
Storage Building	1,275,000	-
Accumulated Depreciation - Storage Building	-	-
Land	750,000	-
Leasehold Improvements	225,000	-
Accumulated Depreciation - Leasehold Improvements	-	-
Office Equipment	325,000	-
Accumulated Depreciation - Office Equipment	-	65,000
Patent	150,000	-
Accounts Payable	-	345,000
Sales Tax Payable	-	-
Salaries Payable	-	142,000
Payroll Taxes Payable	-	25,000
Interest Payable	-	-
Income Tax Payable	-	-
Unearned Rent Revenue	-	-
Loan Payable - Onstar Bank	-	650,000
Loan Payable - Coldstar Bank	-	2,000,000
Common Stock	-	650,000
Additional Paid in Capital	-	1,998,750
Retained Earnings	-	920,000
Accumulated Other Comprehensive Income	-	25,000
Dividends	84,750	-
Sales	-	4,528,200
Sales Returns and Allowances	42,250	-
Sales Discounts	19,250	-
Cost of Goods Sold	1,979,500	-
Sales Salaries Expense	436,400	-
Office Salaries Expense	274,000	-
Advertising Expense	16,000	-
Depreciation Expense - Office Building	-
Depreciation Expense - Leasehold Improvements	-	-
Depreciation Expense - Office Equipment	-	-
Leasing Expense - Stores	132,000	-
Miscellaneous Selling Expense	23,000	-
Research & Development Expense	15,000
Rent Expense - Storage Facility	-	-
Insurance Expense	15,000	-
Office Supplies Expense	35,000	-
Miscellaneous Administrative Expense	9,170	-
Rent Revenue	-	75,000
Interest Revenue on Note Receivable	-	-
Dividend Revenue on AFS Securities	-	25,000
Interest Expense	-	-
Bad Debt Expense	35,000	-
Amortization Expense	-	-
Income Tax Expense	-	-
Payroll Taxes Expense	121,150	-
	11,585,450	11,585,450

Mastery Problem: Analyzing Transactions

KL Company Inc.

In February, Katie Long formed KL Company Inc. Transactions for the month of March have been posted to the T accounts. An intern has prepared a trial balance from the T accounts, but there seem to be some errors.

T accounts

Cash
Bal.	8,000	3/3	2,300
3/25	7,425	3/27	1,225
3/28	7,000	3/29	3,425
3/30	7,975	3/31	1,875

Accounts Receivable
Bal.	1,950
3/18	9,725	3/30	7,975

Supplies
Bal.	225
3/7	1,700

Office Equipment
3/2	16,500

Accounts Payable
3/27	1,225	Bal.	1,250
		3/7	1,700

Notes Payable
		3/2	16,500

Common Stock
		Bal.	7,500
		3/28	7,000

Retained Earnings
		Bal.	1,425

Dividends
3/31	1,875

Fees Earned
		3/18	9,725
		3/25	7,425

Rent Expense
3/3	2,300

Wages Expense
3/29	3,425

Required:

Transactions

Descriptions of the transactions for the month of March are provided in the following table. Each of the transactions that follow has been posted to the T accounts. Referring to the T accounts, select the date on which each transaction occurred, enter the amount of the transaction, and select the account to debit and credit.

Transaction	Date	Amount	Debit	Credit
Purchased equipment, giving a note payable for the purchase price.	3/2	$
Paid rent for April.		$
Purchased supplies on account.		$
Recorded fees earned on account.		$
Received cash for fees earned.		$
Paid creditors on account.		$
KL Company Inc. issued additional shares of common stock in exchange for cash.		$
Paid wages.		$
Received cash from customers on account.		$
KL Company Inc. paid dividends to its stockholders.		$

Hartley uniforms produces uniforms.

produces uniforms. The company allocates manufacturing overhead based on the machine hours each job uses.

Hartley UniformsHartley Uniforms

reports the following cost data for the past​ year:

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​(Click the icon to view the cost​ data.)Read the requirements

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.

Requirement 1. Compute the predetermined manufacturing overhead rate.

Enter the formula for predetermined manufacturing overhead​ rate, then compute the rate.

Estimated yearly overhead costs

/

Estimated yearly machine hours

=

Predetermined overhead rate

$194,400

/

7,200

=

$27

per machine hour

Requirement 2. Calculate the allocated manufacturing overhead for the past year.

						Manufacturing
	Actual machine hours	x	Predetermined overhead rate		=	overhead allocated
	6,300	x	$27		=	$170,100

Requirement 3. Compute the underallocated or overallocated manufacturing overhead. How will this underallocated or overallocated manufacturing overhead be disposed​ of?

First calculate the preliminary manufacturing overhead balance using the​ T-account.

Manufacturing Overhead
Actual indirect materials	50,500			Manufacturing overhead allocated	170,100
Actual indirect manufacturing labor	42,000
Actual depreciation on plant and equipment	72,500
Actual plant utilities	38,400
End Bal	33,300

Close the​ under- or overallocated overhead to Cost of Goods Sold by journalizing the entry.​ (Record debits​ first, then credits. Exclude explanations from any journal​ entries.)

Journal Entry
Date		Accounts	Debit	Credit
				DATA TABLE Budget Actual Direct labor hours. . . . . . . . . . . . . . . . . . . . . . . . 7,600 hours 6,100 hours Machine hours. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,200 hours 6,300 hours Depreciation on salespeople's autos. . . . . . . . . . . . $23,000 $23,000 Indirect materials. . . . . . . . . . . . . . . . . . . . . . . . $48,500 $50,500 Depreciation on trucks used to deliver uniforms to customers. . . . . . . . . . . . . . . . . . . . . . . . . . $13,000 $11,000 Depreciation on plant and equipment. . . . . . . . . . $70,000 $72,500 Indirect manufacturing labor. . . . . . . . . . . . . . . . . $40,000 $42,000 Customer service hotline. . . . . . . . . . . . . . . . . . . . . . $19,000 $21,000 Plant utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,900 $38,400 Direct labor cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $72,500 $85,500

Create the general journals for these transactions:

6	June 6	Paid $12,000 wages owed to employees for work conducted in May.
7	June 7	Received a $5,000 rent payment for the full month of June (again tenants were late and should have paid on June 1).
8	June 8	Purchased property C with $220,000 cash.
9	June 9	Received $6,000 cash for consulting conducted in May.
10	June 10	Paid $500 for utilities that were invoiced in, and expensed in, May.
11	June 11	You have secured an advertising billboard over the freeway. The design of the billboard costs $1,000 (which you pay today), and the monthly advertising fee will be $4000 (payable monthly - and only recognized at end of each month). You will receive the advertising in June for free as part of the contract promotion.
12	June 12	You made an agreement with a web-developer to have your website redesigned. The cost will be $3000 and will be completed in August, payable on completion.
13	June 13	You performed real estate consulting services this week and invoiced the client $14,000.
14	June 14	Paid a $7,000 invoice for legal fees incurred on May 27.
15	June 15	You purchased, with cash, a new $55,000 SUV to get you around town (previously you walked or used public transport). The expense associated with this automobile will be recognized each year for five years, beginning after one year of the asset's life. (Account name AUTOMOBILES)
16	June 16	Received $5,000 cash today for the rental of your function hall associated with Property B for rental today June 16.
17	June 17	Purchased property D with $160,000 cash.
18	June 18	Purchased $1,000 office supplies for cash.
19	June 19	Purchased property E with $80,000 cash.
20	June 20	Received a $4,000 rent payment for the month of July.
21	June 21	Purchased a $350,000 building with $100,000 cash and a note to the seller for the remainder. The building is to be used as your office (i.e. you will not rent this). This will be recorded under PPE.
22	June 22	Paid $18,000 rent for a temporary office for July and August until your new building is ready (your parents kicked you (i.e. your office) out of their garage as they also bought a new car)
23	June 23	Congratulations! The Boston Real Estate Society awarded your company a $10,000 cash prize for excellence in services to the profession. We will need to include this as revenue. (For the purposes of this activity, let’s account for it as miscellaneous revenue)
24	June 24	Received a $7,000 payment for a consulting job that will be performed in July.
25	June 25	Purchased property F with $155,000 cash.
26	June 26	Received a $7,500 rent payment for the month of July.
27	June 27	Performed $2,000 consulting services today and will prepare and send the invoice this week.
28	June 28	Received a $6,000 rent payment for the month of July.
29	June 29	Paid your monthly $5,000 radio advertising subscription for July advertising (which unfortunately increased to $5000 from $4500)
30	June 30	Prepaid the $4,000 billboard advertising for the month of July.
		Adjusting Entries
31	June 30	Recognize the June radio advertising incurred ($4,500).
32	June 30	Recognize your June TV advertising incurerd ($2,000) which you have not yet paid for.
33	June 30	Recognize the interest incurred on the note from transaction 2 for June, to be paid in July.
34	June 30	Recognize $20,000 of wages owed for June, that will be paid to employees early July.
35	June 30	Recognize the entire yearly depreciation on your computer equipment of $3,000.
36	June 30	Recognize the $15,000 rent revenue for June ($10,000 of which was prepaid in May).

1.      Define “Independence” and “Objectivity” as they relate to auditing.

2. Audits typically consist of three phases: Planning; Fieldwork; Reporting. Describe activities that accompany each phase.

Distinguish between Assurance and Attestation Services.