Part A:

Rainbow City had the following transactions during the year.

Required: Prepare the necessary journal entries in the appropriate governmental fund general journal and the government-wide governmental activities general journal for each of the following Rainbow City transactions.

1. The city received a donation of land that is to be used by Parks and Recreation to develop a public park. At the time of the donation, the land had an acquisition value of $4,800,000 and was recorded on the donor’s books at a historical cost of $3,800,000.
2. The Public Works Department sold machinery with a historical cost of $35,100 and accumulated depreciation of $28,700 for $5,000. The machinery had originally been purchased with special revenue funds.
3. A car was leased for the mayor’s use. The first payment was $800, and the present value of the remaining lease payments was $24,000. (Note: the initial cash payment was made by the General Fund.)
4. During the current year, a Capital Projects Fund completed a new public safety building that was started in the prior year. The total cost of the project was $9,720,000. Financing for the project came from a $9,000,000 bond issue that was sold in the prior year and from a $720,000 federal capital grant received in the current year. Current expenditures for the project totaled $1,176,000. The full cost is attributed to the building because it was constructed on city-owned property.
5. The city records a half year of straight-line depreciation on capital assets placed in service during the year. The building in Item 4 has an estimated 30-year life with no salvage value.
6. Due to technological developments, the city determined that the service capacity of some of the technology equipment used by general government has been impaired. The calculated impairment loss due to technology obsolescence was $1,210,000.

Part B:

In the current year, the building occupied by Surf Beach City’s Culture and Recreation Department suffered severe structural damage as a result of a hurricane. It had been 48 years since a hurricane had hit the Rainbow City area, although hurricanes in Rainbow City’s geographic area are not uncommon. The building had been purchased 10 years earlier at a cost of $2,000,000 and had accumulated depreciation of $500,000 as of the date of the hurricane. Based on a restoration cost analysis, city engineers estimate the impairment loss at $230,000; however, the city expects during the next fiscal year to receive insurance recoveries of $120,000 for the damage.

Requirements:

1. Should the estimated impairment loss be reported as an extraordinary item? Explain.
2. Record the estimated impairment loss in the journal for governmental activities at the government-wide level.
3. How should the insurance recovery be reported in the following fiscal year? (You do not need to provide journal entries.)
   • Submit your responses to Part A in Excel format. The answers to Part B can be included on the spreadsheet or be submitted in a Word document.
   • Show calculations for all questions.
   • Support writing portion of the assignment, with credible sources.
   • Use terms, evidence, and concepts from class readings, including professional business language.
   • Review the week’s CT Assignment grading rubric for more information on expectations and how you will be graded.

6.

Dragon Sports Inc. manufactures and sells two products, baseball bats and baseball gloves. The fixed costs are $377,400, and the sales mix is 20% bats and 80% gloves. The unit selling price and the unit variable cost for each product are as follows:

a. Compute the break-even sales (units) for both products combined.
units

b. How many units of each product, baseball bats and baseball gloves, would be sold at the break-even point?

7.

Break-Even Sales and Sales Mix for a Service Company

Zero Turbulence Airline provides air transportation services between Los Angeles, California; and Kona, Hawaii. A single Los Angeles to Kona round-trip flight has the following operating statistics:

It is assumed that the fuel, crew salaries, and airplane depreciation are fixed, regardless of the number of seats sold for the round-trip flight. If required round the answers to nearest whole number.

a. Compute the break-even number of seats sold on a single round-trip flight for the overall product, E. Assume that the overall product is 10% business class and 90% economy class seats.

b. How many business class and economy class seats would be sold at the break-even point?

8.

Margin of Safety

a. If Canace Company, with a break-even point at $518,400 of sales, has actual sales of $810,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number.

1. $ 291,600

2. 36 %

b. If the margin of safety for Canace Company was 45%, fixed costs were $1,871,100, and variable costs were 55% of sales, what was the amount of actual sales (dollars)?
(Hint: Determine the break-even in sales dollars first.)
$ ___________________________

Vertical Analysis of Income Statement

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $15,000 for advertising. At the end of the year, Lumi Neer, the president, is presented with the following condensed comparative income statement:

Required:

1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to sales for each of the years. Enter percentages as whole numbers. Enter all amounts as positive numbers.

2. The vertical analysis indicates that the costs other than selling expenses (cost of merchandise sold and administrative expenses)   as a percentage of sales. As a result, net income as a percentage of sales  . The sales promotion campaign appears to have been  . While selling expenses as a percent of sales   slightly, the   cost was more than made up for by   sale

is prepaid lease a fixed cost or sunk cost?

Select the term from the list provided that best describes each of the following descriptions or definitions.

For the two questions in Part 1, use the project information provided below:

A company is considering replacement of manufacturing equipment with computer controlled equipment, at a cost of $500,000, replacing equipment with a scrap value of $50,000. This will reduce defect costs by $150,000 a year. At the end of 7 years, the equipment will be replaced and will have a scrap value of $100,000. The interest charges for financing the purchase will be $25,000 a year. The new system will be housed in a building that is currently unused, with an overhead value of $10,000 a year. Utility costs will be unchanged. Machine operators will require training of $1000 each for 4 workers. These workers are scheduled for a raise of $3000 each. Because the new equipment technology is well-established for its intended use, the risk premium for the project is considered to be 2 percentage points less than the company’s WACC of 8%.   

1A. List the investment facts for the project:

NOTE: List all of the financial details associated with the project and designate which should be included (and which ignored) in calculating the project’s cash flows and its cost of capital.

Life of the project:_________

Interest rate for the project:             _______ (cost of capital to the firm adjusted for project risk)

PVIF for the project:           _______

PVIFA for the project:        _______

Initial investment: (include all cash flows - positive and negative - that occur at the beginning of the project)

Future cash flows: (negative and positive)

Lump sum: (one time)

Annuity: (repeated annually)

Costs that you will ignore: (sunk cost or otherwise)

1B. Using the relevant net cash flows and cost of capital from A above, calculate the NPV for the project. (use the NPV formula and the PV tables)

If you are going to Refine your cost system you must

A identify the activities involved in a process and understanding how those activities consume resources

B Seek an easier and more cost effective way to calculate average costs

C classify as many costs as indirect costs as is feasible

D create as many cost pools as possible to capture all costs

If using the weighted-average method of process costing and you are calculating the cost per equivalent unit (step 4), you would include all the costs ________.

A that have entered work in process from the units started or transferred in during the current accounting period

B that have entered work in process during the current accounting period from the units started or transferred in minus the costs associated with ending inventory

C entering work in process from the units in beginning inventory plus the costs for the work completed during the current accounting period

D that have entered work in process during the current accounting period from the units started or transferred in plus the costs associated with ending inventory

Companies that use a process costing system are at a disadvantage over those that use job order costing because

A t requires the estimation of percentage of completion of work-in-process for calculating equivalent units.

B it is difficult to determine cost of goods sold when partial shipments are made before completion.

C time spent on tracking labor and materials is wasted.

D it is difficult to ensure that material and labor are accurately charged to each specific job.

Audio Accessories Ltd manufactures a model of compact disc holders which is produced in three separate departments: Molding, Assembly, and Finishing. It uses the weighted-average process-costing method to account for the cost of production. The following information was obtained for the Assembly Department for the month of April.
Amount Percentage complete

WIP, 1 April (5,000 units)
Prior department costs transferred in from the Molding Department $7,000 100%
Costs added by the Assembly Department
Direct materials $3,500 100%

Direct labour 4,500 60%
Manufacturing overhead 2,000 50%
10,000
Total WIP, 1 April $17,000
During the month of April, the Molding Department transferred into the Assembly Department 25,000 units at a prior department cost of $38,000. The Assembly Department added the following $51,700 of costs:
Direct materials $19,700
Direct labour 22,500
Manufacturing overhead 9,500
$51,700
The Assembly Department completed and transferred out 20,000 units to the Finishing Department. The balance was still in WIP in the Assembly Department. The degree of completion of WIP at 30 April was as follows:
Direct materials 90%
Direct labour 70%
Manufacturing overhead 30%
Required:
(a) Prepare a report to show the physical flow of units, the equivalent units, unit costs of transferred in cost, direct materials, direct labour and manufacturing overheads.
(b) Prepare a report to show the cost of goods completed and the cost of ending work in process for the month.
Explain why process costing system is best suited to Audio Accessories Ltd?

Top executive officers of Baird Company, a merchandising firm, are preparing the next year’s budget. The controller has provided everyone with the current year’s projected income statement. Current Year Sales revenue $ 2,300,000 Cost of goods sold 1,725,000 Gross profit 575,000 Selling & administrative expenses 304,000 Net income $ 271,000 Cost of goods sold is usually 75 percent of sales revenue, and selling and administrative expenses are usually 10 percent of sales plus a fixed cost of $74,000. The president has announced that the company’s goal is to increase net income by 15 percent. Required The following items are independent of each other. Using Excel prepare a pro forma income statement. What percentage increase in sales would enable the company to reach its goal? The market may become stagnant next year, and the company does not expect an increase in sales revenue. The production manager believes that an improved production procedure can cut cost of goods sold by 2 percent. Prepare a pro forma income statement still assuming the President's goal to increase net income by 15 percent. Calculate the required reduction in selling & administrative expenses to achieve the budgeted net income. The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and administrative expenses to $347,000. With the increased advertising, the company expects sales revenue to increase by 15 percent. Assume that cost of goods sold remains a constant proportion of sales. Prepare a pro forma income statement. Will the company reach its goal?