Problem 4-23

“Of all the times this hard drive could crash, it had to be now, ” Marcy cried. “How can I finish the June financial reports without all the information? I knew I should have backed up the disk last night before I left work.” News of the disaster traveled quickly through the office, and people began to stop by her cubicle to offer their help.

     John was the first to the rescue. “It might not be as bad as you think, Marcy. I have the financial reports from May right here. According to the balance sheet, we had a total inventory of $99,000 at the end of May. And I remember that the Finished Goods Inventory was one-third of that amount.”

     “I just finished the inventory counts last night,” Peter chimed in from across the hall. “According to my tally sheets, we finished June with $80,000 in Direct Materials Inventory, $52,000 in Work in Process Inventory, and $25,000 in Finished Goods Inventory. This was a 100% increase from the balances in Direct Materials Inventory and Work in Process Inventory at the end of May. I bet with a little more investigative work, we can get all the numbers you need to complete the reports.”

     Sally called from Payroll to tell Marcy that the company had paid a total of $36,000 for direct labor during June. Juan, the billing supervisor, e-mailed Marcy that the company had sent out invoices to customers totaling $291,000.

     Marcy knew that the overhead rate was 200% of direct labor costs. She also knew that the company priced its product using a 50% markup on the cost of goods sold. Armed with all this information, she sat down to reconstruct the inventory accounts for June.

T-accounts for

Direct materials

Work in process

finished goods

CC6-1 Accounting for Merchandising Operations [LO 6-4, LO 6-5]

The Polaris Company uses a job-order costing system. The following data relate to October, the first month of the company’s fiscal year. a. Raw materials purchased on account, $210,000. b. Raw materials issued to production, $191,000 ($152,800 direct materials and $38,200 indirect materials). c. Direct labor cost incurred, $49,000; indirect labor cost incurred, $20,000. d. Depreciation recorded on factory equipment, $105,000. e. Other manufacturing overhead costs incurred during October, $130,000 (credit Accounts Payable). f. The company applies manufacturing overhead cost to production on the basis of $8 per machine-hour. A total of 76,300 machine-hours were recorded for October. g. Production orders costing $511,000 according to their job cost sheets were completed during October and transferred to Finished Goods. h. Production orders that had cost $453,000 to complete according to their job cost sheets were shipped to customers during the month. These goods were sold on account at 26% above cost.

Required: 1. Prepare journal entries to record the information given above

(1.a) Record the journal entry for purchase of raw material as given below:

(1.b) Journal entry for the issuance of material for production as given below:

(1.c) Journal entry for direct and indirect labor cost incurred as given below:

(1.d) Journal entry for recording depreciation as given below:

(1.e) Journal entry for manufacturing overheads incurred as given below:

1.f) Journalize the transaction of overheads absorbed as given below:

(1.g) Journal entry for finished goods as given below:

(1.h)Journal entry for finished goods available for sale as given below:

6.1 A statute gives the Department of the Interior the power to allow or to curtail mining within the national forests “as the best interests of all users of the national forest shall dictate.” Is this a valid delegation of legislative power to the agency, or is it too broad a delegation of power? 8.1 Before deciding which remedies are available under Article 2 of the UCC, one must first determine whether the transaction involved the sale of goods. Consider the following fact patterns. A. Tanzer entered into a contract with Audio Visual Artistry to install a “smart home” system in Tanzer’s house, which was under construction. The contract included expert installation services for a custom home theatre, lighting, music, and phone system. Was the contract for a sale of goods or services? [Audio Visual Artistry v. Tanzer, 403 S.W.3d 789 (Tenn. Ct. App. 2012).] B. Wachter, a construction company, entered into a contract to purchase an accounting and project management software package from DCI, a company that develops, markets, and supports software for construction companies. The package included “installation of the software, a full year of maintenance, and a training and consulting package.” Was the contract for a sale of goods or services? [Wachter Management Co. v. Dexter & Chaney, Inc., 144 P.3d 747 (Kan. 2006).] C. A customer sued a New York restaurant for breach of warranty after a glass of water allegedly exploded in his hand during the course of a meal. Does the claim involve the sale of goods? [Gunning ex rel. Gunning v. Small Feast Caterers, Inc., 777 N.Y.S.2d 268 (N.Y. Sup. 2004).] D . Brenda Brandt underwent an operation at the Sarah Bush Lincoln Health Center to implant a ProtoGen Sling to resolve her urinary incontinence. Instead of solving the problem, the sling resulted in serious complications and was subsequently removed. After the device was recalled by its manufacturer, Brandt sued the Health Center for breach of warranty. Does the claim involve the sale of goods or services? [Brandt v. Boston Scientific Corp., 792 N.E.2d 296 (Ill. 2003).

Income Statements under Absorption and Variable Costing

Patagucci Inc. manufactures and sells athletic equipment. The company began operations on August 1, 2016, and operated at 100% of capacity (75,900 units) during the first month, creating an ending inventory of 6,900 units. During September, the company produced 69,000 garments but sold 75,900 units at $85 per unit. The September manufacturing costs and selling and administrative expenses were as follows:

a. Prepare an income statement according to the absorption costing concept for September.

b. Prepare an income statement according to the variable costing concept for September.

c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)?

Under the absorption costing method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under variable costing , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory decreases, the absorption costing income statement will have a lower income from operations.

Backcountry Adventures is a​ Colorado-based outdoor travel agent that operates a series of backcountry huts.​ Currently, the value of the firm is

$3.8

million. But profits will depend on the amount of​ snowfall: If it is a good​ year, the firm will be worth

$5.4

​million, and if it is a bad year it will be worth

$2.4

million. Suppose managers always keep the debt to equity ratio of the firm at

30%​,

and the debt is riskless.     

a. What is the initial amount of​ debt?

b. Calculate the percentage change in the value of the​ firm, its equity and its debt once the level of snowfall is​ revealed, but before the firm adjusts the debt level to achieve its target debt to equity ratio.

c. Calculate the percentage change in the value of outstanding debt once the firm adjusts to its target​ debt-equity ratio.

d. What does this imply about the riskiness of the​ firm's tax shields. Explain.

A fire chief wants to relate the amount of fire damage in major residential fires to the distance between the residence and the nearest fire station in order to get approval to add a fire station. The chief performs a study using a sample of fifteen recent fires in the town. The following table shows the result of the study.

a. Is there a strong or weak correlation between distance and dollar loss? What is the correlation between the two?
b. What is the estimated dollar loss if the distance of the fire station was 10 miles, 5 miles, and 2.5 miles.

Andrea would like to organize SHO as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 10 percent annual before-tax return on a $860,000 investment. Andrea’s marginal income tax rate is 35 percent and her tax rate on dividends and capital gains is 15 percent. Andrea will also pay a 3.8 percent net investment income tax on dividends and capital gains she recognizes. If Andrea organizes SHO as an LLC, Andrea will be required to pay an additional 2.9 percent for self-employment tax and an additional 0.9 percent for the additional Medicare tax. Further, she is eligible to claim the full deduction for qualified business income. Assume that SHO will pay out all of its after-tax earnings every year as a dividend if it is formed as a C corporation.

Two cars start from rest at a red stop light. When the light turns green, both cars accelerate forward. The blue car accelerates uniformly at a rate of 4.7 m/s2 for 3.8 seconds. It then continues at a constant speed for 8.5 seconds, before applying the brakes such that the car’s speed decreases uniformly coming to rest 206.78 meters from where it started. The yellow car accelerates uniformly for the entire distance, finally catching the blue car just as the blue car comes to a stop. 1) How fast is the blue car going 2.7 seconds after it starts? 3) How far does the blue car travel before its brakes are applied to slow down? What is the acceleration of the blue car once the brakes are applied? 5) What is the total time the blue car is moving? What is the acceleration of the yellow car?