Exercise 8-19 (Part Level Submission)

Waterway Corporation began operations on December 1, 2019. The only inventory transaction in 2019 was the purchase of inventory on December 10, 2019, at a cost of $25 per unit. None of this inventory was sold in 2019. Relevant information is as follows.

During the year 2020, the following purchases and sales were made.

The company uses the periodic inventory method.

(a1) Calculate average-cost per unit. (Round answer to 2 decimal places, e.e. 2.76.)

(a2) Determine ending inventory under (1) specific identification, (2) FIFO, (3) LIFO, and (4) average-cost. (Round answer to 0 decimal places, e.g. 2,760.)

(b1) Calculate price index. (Round answer to 4 decimal places, e.g. 2.7600.)

(b2) Determine ending inventory using dollar-value LIFO. Assume that the December 2, 2020, purchase cost is the current cost of inventory.(Hint: The beginning inventory is the base layer priced at $25 per unit.) (Round answer to 0 decimal places, e.g. 2,760.)

Part 1

As the controller of Lynbrook, Inc., you were asked to evaluate a potential bond issuance to raise funds to expend the company’s operations. Lynbrook is considering issuing a $10 million 5- year, 12 percent bonds payable on June 30, 2020. Interest would be payable semiannually on December 31 and June 30. Bond discounts and premiums would be amortized at each interest payment date using the straight-line method. The company's fiscal year ends at December 31.

Requirement:

a. Prepare an amortization table for each of the 10 semiannual periods, under each of the following assumptions:

1. The bonds were issued at 98. (round to the nearest dollar.) 2. The bonds were issued at 101. (round to the nearest dollar.)

2. Prepare the journal entry to record the issuance of the bonds on June 30, 2020 if Lynbrook issues the bonds at 98.

3. Prepare the journal entries necessary to record the semiannual bond interest payments on December 31, 2020 and June 30, 2021, if the bonds were issued at 101.

Part 2

The long-range strategic budgeting process also called for Lynbrook to borrow $2,000,000 cash on January 1, 2020 from Wells Fargo by signing a ten-year 6% installment note. The note requires equal payments of principal and interest on December 31 each year in the amount of $271,736.

Required

1. Prepare the journal entries required by Lynbrook on the following dates: a) December 31, 2020

b) December31,2021
2. Determine the total interest expense Lynbrook will recognize over the life of the note.

1. Calculate the cost of a Regular widget in 2020 using the traditional costing system.
2. Calculate the cost of a Regular widget in 2020 using the ABC system.
3. Explain why your results differ in questions 7 and 8. Be specific.
4. What characteristics of Company DEF suggest that changing to an ABC system might benefit it? Which costing system do you recommend Company DEF use? Why

The accounting department has also compiled the following data by product line for 2020:

Company DEF makes three types of widgets: Simple, Regular, and Deluxe. The company currently uses a traditional costing system with one indirect cost pool and machine hours as its allocation base; however, it is considering whether it should implement an activity-based costing (ABC) system in 2020. The accounting department has studied the indirect cost pool and developed the following cost pool data for use in an ABC system in 2020:

Crane Sports began operations on January 2, 2020. The following stock record card for footballs was taken from the records at the end of the year. Date Voucher Terms Units Received Unit Invoice Cost Gross Invoice Amount 1/15 10624 Net 30 51 $22 $1,122 3/15 11437 1/5, net 30 66 18 1,188 6/20 21332 1/10, net 30 91 17 1,547 9/12 27644 1/10, net 30 85 13 1,105 11/24 31269 1/10, net 30 77 12 924 Totals 370 $5,886 A physical inventory on December 31, 2020, reveals that 108 footballs were in stock. The bookkeeper informs you that all the discounts were taken. Assume that Crane Football Shop uses the invoice price less discount for recording purchases.

1.) Compute the December 31, 2020, inventory using the FIFO method. (Round per unit and final answer to 2 decimal paces, e.g. 35.57.) Ending Inventory using the FIFO method $

2.)Compute the 2020 cost of goods sold using the LIFO method. (Round per unit and final answer to 2 decimal paces, e.g. 35.57.) Cost of Goods Sold using the LIFO method $

3.) What method would you recommend to the owner to minimize income taxes in 2020, using the inventory information for footballs as a guide?

On June 1, 2018, Waterway Company and Wildhorse Company merged to form Sheffield Inc. A total of 769,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis. On April 1, 2020, the company issued an additional 599,000 shares of stock for cash. All 1,368,000 shares were outstanding on December 31, 2020. Sheffield Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 36 shares of common at any interest date. None of the bonds have been converted to date. Sheffield Inc. is preparing its annual report for the fiscal year ending December 31, 2020. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,688,000. (The tax rate is 20%.) Determine the following for 2020. (a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.) (1) Basic earnings per share enter a number of shares rounded to 0 decimal placesEntry field with incorrect answer 1.39 shares (2) Diluted earnings per share enter a number of shares rounded to 0 decimal placesEntry field with incorrect answer 4800 shares (b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.) (1) Basic earnings per share $enter a dollar amount rounded to 0 decimal placesEntry field with incorrect answer 1.78 (2) Diluted earnings per share

Snowbird Inc. (Snowbird) manufactures and sells one model of sleds. Snowbird’s accountant gathered the following information to prepare the budget for 2020:

Snowbird has a policy of maintaining finished goods inventory at the end of each quarter equal to 5% of the following quarter’s projected sales. There were 150 sleds in finished goods inventory at the start of 2020, with a total cost of $45,000. Materials and labour requirements for the sleds are:

Direct materials inventory on the first day of 2020 was 1,000 board-metres. Direct materials were originally purchased at $33 per board-metre. Prices have now risen to

$34 per board-metre. The desired ending materials inventory is 10% of the following quarter’s projected production needs.

Snowbird’s direct labourers are paid $16 per hour. Variable manufacturing overhead is allocated at the rate of $15 per direct labour hour. Fixed manufacturing overhead costs are budgeted at $186,240 for 2020. Snowbird uses first-in, first-out to account for its inventory flow.

Required:

Prepare the following budgets and schedules as part of the master budget for the first quarter of 2020:

1. Production budget
2. Direct materials purchase budget
3. Direct labour budget (
4. Manufacturing overhead budget
5. Ending finished goods inventory budget

Glaser Company carries the following investments on its books at December 31, 2020 and December 31, 2021. Available for-Sale securities are considered to be non-current. All securities were purchased and properly recorded during February 2020. You need to combine all trading and AFS securities into trading portfolio and AFS portfolio, respectively, while making the fair value adjustment entries.

Required:

• Prepare the necessary fair value adjusting journal entries for Glaser on December 31, 2020.
• Assume Glaser sold its investment in “B” for $125 on December 15, 2021; prepare journal entries for sales of investment on December 15 and fair value adjusting journal entries on December 31, 2021.

• Ignoring income taxes and assuming both the retained earnings and accumulated other comprehensive income have a balance of 0 on December 31, 2019, complete the following schedule:

Entity A is a manufacturer of consumer goods. On 1 January 2020, Entity A entered into a one-year contract to sell goods to a large global chain of retail stores. The customer committed to buy at least $90,000,000 of products in January. The contract required Entity A to make a non-refundable payment of $200,000 to the customer at the inception of the contract. The $200,000 payment is to compensate the customer for the changes required to its shelving to accommodate Entity A's products. Entity A duly paid this $200,000 to the customer on 3 January 2020.

Entity A transferred goods with an invoice price of $98,000,000 to the customer on 31 January 2020. The customer agreed to settle the outstanding amount by two payments, i.e. 40% and 60% of the outstanding amount on 18 February 2020 and 31 March 2020 respectively.

REQUIRED:

Provide journal entries for Entity A from 1 January 2020 to 31 March 2020 in accordance with relevant accounting standards.

ACCOUNT NAMES FOR INPUT:

| Plant | Machine | Motor van | Equipment | Land | Building | Inventory | Intangible assets |

| Bank | Payable | Receivable | Other income | Other expense | Interest expense | Interest revenue |

| Depreciation | Accum. depreciation | Impairment loss | Reversal of impairment loss | Goodwill |

| Loss on disposal | Gain on disposal | Restoration liability | Revaluation surplus | Revaluation deficit |

| Asset for product to be returned | Commission expense | Commission revenue | Revenue |

| Cost of sales | Refund liability | Contract asset | Contract liability | Retained earnings | No entry |

ANSWERS:

Journal Entries:

F. Jack comes to see you in February 2020. He is full of enthusiasm for a new product that he is about to launch on to the market. Unfortunately, his financial recklessness in the past has led him into being bankrupt twice, and he has only just been discharged by the court from his second bankruptcy. ‘Look here, Amben,’ he says, ‘with my new idea I’ll be a wealthy man before Christmas.’ ‘Calm down,’ you say, ‘and tell me all about it.’ Jack’s plans as far as cash is concerned for the next six months are:

(a) Opening cash (including bank) balance on 1 July 2020 £3,600

(b) Production in units:

(c) Raw materials used in production cost £15 per unit. Of this, 90 per cent is paid in the month of production and 10 per cent in the month after production.

(d) Direct labour costs of £24 per unit are payable in the month of production.

(e) Variable expenses are £6 per unit, payable 40 per cent in the same month as production and 60 per cent in the month following production.

(f) Sales at £60 per unit:

Debtors to pay their accounts three months after that in which sales are made.

(g) Fixed expenses of £1,200 per month payable each month.

(h) Machinery costing £6,000 to be paid for in September 2020. The machine has a useful life of 5 years and depreciation is computed using the reducing balance method.

(i) Will receive a legacy of £7,500 in November 2020 and will pay it into the business account.

(j) Drawings will be £900 per month.

You are required:

Draw up a cash budget for F. Jack showing the balance at the end of each month, from the above information for the six months ended 31 December 2020: