Antioch Company makes eBook readers. The company had the following amounts at the beginning of 2018: Cash, $673,000; Raw Materials Inventory, $65,000; Work in Process Inventory, $23,000; Finished Goods Inventory, $53,000; Common Stock, $594,000; and Retained Earnings, $220,000. Antioch experienced the following accounting events during 2018. Other than the adjusting entries for depreciation, assume that all transactions are cash transactions.

1. Paid $23,000 of research and development costs.

2. Paid $58,000 for raw materials that will be used to make eBook readers.

3. Placed $85,000 of the raw materials cost into the process of manufacturing eBook readers.

4. Paid $78,000 for salaries of selling and administrative employees.

5. Paid $106,000 for wages of production workers.

6. Paid $179,000 to purchase equipment used in selling and administrative offices.

7. Recognized depreciation on the office equipment. The equipment was acquired on January 1, 2018. It has a $19,000 salvage value and a eight-year life. The amount of depreciation is computed as [(Cost – salvage) ÷ useful life]. Specifically, ($179,000 – $19,000) ÷ 8 = $20,000.

8. Paid $188,000 to purchase manufacturing equipment.

9. Recognized depreciation on the manufacturing equipment. The equipment was acquired on January 1, 2018. It has a $28,000 salvage value and a eight-year life. The amount of depreciation is computed as [(Cost – salvage) ÷ useful life]. Specifically, ($188,000 – $28,000) ÷ 8 = $20,000.

10. Paid $63,000 for rent and utility costs on the manufacturing facility.

11. Paid $74,000 for inventory holding expenses for completed eBook readers (rental of warehouse space, salaries of warehouse personnel, and other general storage cost).

12. Completed and transferred eBook readers that had total cost of $248,000 from work in process inventory to finished goods.

13. Sold 810 eBook readers for $425,000.

14. It cost Antioch $145,800 to make the eBook readers sold in Event 13.

1. c-1. Prepare a schedule of cost of goods manufactured and sold for the year. (Amounts to be deducted should be indicated with a minus sign.)

2. c-2. Prepare a formal income statement for the year.

3. c-3. Prepare a balance sheet for the year.

Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow:

Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 10,000 speakers per year. It has received a quote of $30 per speaker from another manufacturer. Sako Company evaluates division managers on the basis of divisional profits.

Required:

1. Assume the Audio Division is now selling only 55,000 speakers per year to outside customers.

a. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division?

b. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division?

c. What is the range of acceptable transfer prices (if any) between the two divisions? If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 10,000 speakers from the Audio Division to the Hi-Fi Division?

2. Assume the Audio Division is selling all of the speakers it can produce to outside customers.

a. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division?

b. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division?

c. What is the range of acceptable transfer prices (if any) between the two divisions? If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 10,000 speakers from the Audio Division to the Hi-Fi Division?

On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $410 million. The expected completion date is April 1, 2020, just in time for the 2020 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

2018  

Costs incurred during the year $ 50

Estimated costs to complete as of December 31 $200

2019  Costs incurred during the year $ 150

Estimated costs to complete as of December 31 $50

2020 Costs incurred during the year $ 45

Estimated costs to complete  —

Required:

1. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion.

2. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming this project does not qualify for revenue recognition over time.

3. Suppose the estimated costs to complete at the end of 2019 are $200 million instead of $50 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method.

Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming this project does not qualify for revenue recognition over time. (Enter your answers in millions. Loss amounts should be indicated with a minus sign.)

Suppose the estimated costs to complete at the end of 2019 are $200 million instead of $50 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method.  (Enter your answers in millions. Use percentages as calculated and rounded in the table below to arrive at your final answer.)

On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $260 million. The expected completion date is April 1, 2020, just in time for the 2020 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

Required:
1. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion.
2. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming this project does not qualify for revenue recognition over time.
3. Suppose the estimated costs to complete at the end of 2019 are $110 million instead of $60 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method.

Required 1

Required 2

Required 3

Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion. (Enter your answers in millions. Loss amounts should be indicated with a minus sign. Use percentages as calculated and rounded in the table below to arrive at your final answer.)

2.

Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming this project does not qualify for revenue recognition over time. (Enter your answers in millions. Loss amounts should be indicated with a minus sign.)

3.

Suppose the estimated costs to complete at the end of 2019 are $110 million instead of $60 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method. (Enter your answers in millions. Use percentages as calculated and rounded in the table below to arrive at your final answer.)

For many years Miller Company manufactured television tubes in Massachusetts at a per unit cost of $100 for direct labor, $50 for direct material, and $20 for overhead. A portion of production was sold to Fiona Manufacturing, Ltd., Miller´s wholly owned distribution affiliate in Ireland, for $220 per unit. The Irish affiliate incurred an additional $30 per unit of direct costs and resold to European television manufactures for $300 per unit. No other costs were involved, expect for income taxes at 46% in both countries.

Comprehensive tax reform legislation passed by the U.S. Congress in 1986 lowered U.S. corporate income taxes to 34%, effective in 1987. Miller judged that it could raise or lower its export sales price to its Irish affiliate by up to 10% without causing a tax challenge from either Irish or U.S. tax authorities. Miller´s president wondered if she should change the firm´s Irish transfer price in the light of the new U.S. tax law.

a/ In 1986, what was Miller´s consolidated after-tax profit per unit sold to Fiona?

The consolidated after-tax profit per unit is _____ $. (round your answer to 2 decimals in $ and fill 0 to meet 2 decimals requirement if needed).

b/ In 1987 with no change in transfer price, what was Miller´s consolidated after-tax profit per unit sold to Fiona?

The consolidated after-tax profit per unit is _____ $. (round your answer to 2 decimals in $ and fill 0 to meet 2 decimals requirement if needed).

c/ In 1987 with 10 % increase in the transfer price, what was Miller´s consolidated after-tax profit per unit sold to Fiona?

The consolidated after-tax profit per unit is  $. (round your answer to 2 decimals in $ and fill 0 to meet 2 decimals requirement if needed)

d/ In 1987 with 10 % decrease in the transfer price, what was Miller´s consolidated after-tax profit per unit sold to Fiona?

The consolidated after-tax profit per unit is _____  $. (round your answer to 2 decimals in $ and fill 0 to meet 2 decimals requirement if needed).

Pop Corporation acquired 70 percent of Soda Company's voting common shares on January 1, 20X2, for $118,300. At that date, the noncontrolling interest had a fair value of $50,700 and Soda reported $70,000 of common stock outstanding and retained earnings of $31,000. The differential is assigned to buildings and equipment, which had a fair value $24,000 higher than book value and a remaining 10-year life, and to patents, which had a fair value $44,000 higher than book value and a remaining life of five years at the date of the business combination. Trial balances for the companies as of December 31, 20X3, are as follows:

On December 31, 20X2, Soda purchased inventory for $27,000 and sold it to Pop for $45,000. Pop resold $28,000 of the inventory (i.e., $28,000 of the $45,000 acquired from Soda) during 20X3 and had the remaining balance in inventory at December 31, 20X3.

During 20X3, Soda sold inventory purchased for $54,000 to Pop for $90,000, and Pop resold all but $26,000 of its purchase. On March 10, 20X3, Pop sold inventory purchased for $14,000 to Soda for $28,000. Soda sold all but $7,000 of the inventory prior to December 31, 20X3. Assume Pop uses the fully adjusted equity method, that both companies use straight-line depreciation, and that no property, plant, and equipment has been purchased since the acquisition.

Required:
a. Prepare all consolidation entries needed to prepare a full set of consolidated financial statements at December 31, 20X3, for Pop and Soda.

b. Prepare a three-part consolidation worksheet for 20X3.

Mr. Charlie Brown has spent his entire career with the Peanuts Manufacturing Company. He is located in Sarnia, Ontario and started with the company as a production line manager. He has since moved up the ranks of the company, and most recently has been supervising the entire production department. In early 2020, Charlie was offered an opportunity to oversee the construction of a new manufacturing operation in Jacksonville, Florida, USA. If Mr. Brown takes the position, he would move to the United States on May 1, 2020 and when the facility is completed, Mr. Brown would remain as the senior vice president in charge of all of the Florida operations. Mr. Brown and his wife have 2 school age children who are enrolled at the local elementary school in grades 3 and 5. The Browns own a home in Sarnia and are involved in their community. They belong to their local church and a local recreational club where their children take swimming lessons and the family enjoys socializing. The Brown Family is considering the offer to move and is looking for advice on how their Canadian residency for tax purposes would be affected by this potential move. Mr. Brown has been told by the American payroll department that his tax rate will be lower if he is taxed in the United States. Mr. Brown would leave on May 1st, but the Browns are considering having Mrs. Brown and the children stay in Sarnia to finish out the school year which finishes at the end of June.

Required: Create a short (one page) memo explaining the tax policy to your client. Keep in mind that he will have limited understanding of income taxation, so you need to analyze the issue at a high level and then clearly describe the options available to Mr. Brown so that he can make an informed decision about his move and the tax consequences.

Comprehensive Master (Operating) Budget

Bee Gee Distributors, a wholesale company, is considering whether to open a new distribution center near Bowling Green, Ohio. The center would open January 1, 2020. The economic outlook is reasonable, but extensive advance planning is required if such a commitment is to be made. As a part of the planning process, The Board of Directors requires a Master (i.e. Operating) Budgetfor the center’s first quarter of operations(i.e. January, February & March of 2020).  In order to prepare anybudget, management must make reasonable assumptions about expected sales, inventory levels and cash flows.  

Required:  Your help is needed to construct the entire first quarter Master Budget based upon the following two pages of management assumptions:

SALES BUDGET: “What is the Profit Plan?”

        ** It all starts with a sales forecast **

a.     January sales are estimated to be $400,000 of which $100,000 (25%) will be cash and $300,000 will be on credit.  Management expects the above sales pattern to continue with an overall grow rate of 10% per month.  Prepare a sales budget.

b.     The company expects to collect 100% of the accounts receivable in the month following the month of the sale.  Prepare a schedule of expected cash receipts.

c.     Use the information developed above in requirements a and bto determine the amount of accounts receivable on the March 31 pro forma balance sheet and the amount of sales on the first quarter pro forma income statement.

_____________________________________________________________________

PURCHASES BUDGET: “What are our total needs, less what do we have”?

d.     Cost of goods sold will be 60% of sales.  Company policy is to budget an ending inventory balance equal to 25% of the next month’s projected cost of goods sold.  Prepare an inventory purchases budget.

Note: For March analysis needs, Aprilcost of goods sold is expected to be $314,000.

Metlock Inc., a registered broker, enters into a finder’s fee agreement with HOM Homes Ltd. on June 15, 2020. Metlock will find leads in the form of buyers potentially interested in purchasing HOM’s real estate holdings. Along with finding potential buyers, Metlock helps negotiate the selling price and provides advice on contract details. If and when HOM closes a sale, Metlock will be paid within 30 days of the closing date, based on the following formula: 5% of any transaction value up to and including $1 million, plus 4% of any transaction value greater than $1 million and less than and including $2 million, plus 3% of any transaction value greater than $2 million and less than and including $3 million, plus 2% of any transaction value greater than $3 million and less than and including $4 million, plus 1% of any transaction value in excess of $4 million. If Metlock is represented by another broker and this information is not shared with HOM, the fee is reduced by 50%. On September 1, 2020, HOM paid Metlock $51,000 to provide some needed cash flow for seeking out buyers. On October 15, 2020, an offer was made and accepted for a parcel of real estate at a price of $3.50 million. The transaction closed on November 1, 2020, and Metlock was paid the finder’s fee net of $51,000 on November 30, 2020.

Determine the accounting treatment of the above events for Metlock Inc. and prepare any journal entries needed on: (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

List of Accounts

• Accounts Payable
• Accounts Receivable
• Advertising Expense
• Allowance for Doubtful Accounts
• Allowance for Sales Returns and Allowances
• Cash
• Commission Expense
• Commission Revenue
• Compensation Expense
• Consignment Sales
• Construction Expenses
• Contract Asset/Liability
• Cost of Goods Sold
• Estimated Inventory Returns
• Interest Expense
• Interest Income
• Interest Payable
• Interest Receivable
• Inventory
• Inventory on Consignment
• Loss from Long-Term Contracts
• Materials, Cash, Payables
• Miscellaneous Expense
• No Entry
• Notes Receivable
• Office Expense
• Refund Liability
• Rent Revenue
• Returned Inventory
• Revenue from Consignment Sales
• Revenue from Long-Term Contracts
• Sales Discounts
• Sales Discounts Forfeited
• Sales Returns and Allowances
• Sales Revenue
• Service Revenue
• Unearned Rent Revenue
• Unearned Revenue
• Utilities Expense
• Warranty Expense
• Warranty Liability
• Warranty Revenue