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1. Following are partially completed financial statements (income statement, statement of retained e...Following are partially completed financial statements (income statement, statement of retained earnings, and balance sheet) for ShakerShaker Corporation. Complete the financial statements. All amounts are in millions.
Shaker Corporation
Income Statement
Year Ended December 31, 2016
(millions)
Net sales $190
Expenses 109
Net income (loss) $ a
Shaker Corporation
Statement of Retained Earnings
Year Ended December 31, 2016
(millions)
Beginning retained earnings $76
Net income b
Cash dividends declared (7)
Ending retained earnings $ c
Shaker Corporation
Balance Sheet
December 31, 2016
(millions)
Assets
Cash $120
All other assets d
Total assets $ e
Liabilities
Total liabilities $41
Stockholders' equity
Common stock 28
Retained earnings f
Total stockholders' equity g
Total liabilities and stockholders' equity $ h
a Net income (loss)
b Net income
c Ending retained earnings
d All other assets
e Total assets
f Retained earnings
g Total stockholders' equity
h Total liabilities and stockholders' equity
2. Ike issues $180,000 of 11%, three-year bonds dated January 1, 2013, that pay interest semiannually o
Ike issues $180,000 of 11%, three-year bonds dated January 1, 2013, that pay interest semiannually on June 30 and December 31. They are issued at $184,566. Their market rate is 10% at the issue date.
1.
Required:
1. Prepare the January 1, 2013, journal entry to record the bonds' issuance.
2.
2. Complete the below table to calculate the total bond interest expense to be recognized over the bondsAc€?c life.
3.
3. Prepare an effective interest amortization table for the bondsAc€?c first two years.
4.
4. Prepare the journal entries to record the first two interest payments.
5.
5. Prepare the journal entry to record the bonds' retirement on January 1, 2015, at 98.
3. Rent, electricity, and executive salaries .hat do not vary with production or sales level are ref...
Rent, electricity, and executive salaries .hat do not vary with production or sales level are referred to as _____ costs. A) fixed B) variable C) break-even D) target E) promotional Costs that change directly with the level of production are referred to as ____ costs. A) fixed B) variable C) target D) capital E) payroll _____ costs refer to the sum of the fixed and variable costs for any given level of production. A) Target B) Marginal C) Value-based D) Total E) Break -even Lovely Skin is establishing a pricing strategy for a new moisturizer. The total cost to produce each unit is $3.50. The company has decided to add a $1.50 markup, so the unit price to distributors will be $5. Lovely Skin is using a ____ approach to price the new moisturizer. A) value-added B) good-value C) cost-plus D) competitor-based E) break-even ______ pricing is when a firm tries to determine the price at which it will break even or the profit it is seeking. A) Competition-based B) Target return C) Cost-plus D) Good-value E) Value-added
4. 36. Bond Co. is using the target cost approach on a new product. Information gathered so far...
36. Bond Co. is using the target cost approach on a new product. Information gathered so far reveals:
Expected annual sales400,000 units
Desired profit per unit$0.35
Target cost$168,000
What is the target selling price per unit?
a.$0.42
b.$0.70
c.$0.35
d.$0.77
37. Well Water Inc. wants to produce and sell a new flavored water. In order to penetrate the market, the product will have to sell at $2.00 per 12 oz. bottle. The following data has been collected:
Annual sales50,000 bottles
Projected selling and administrative costs$8,000
Desired profit$70,000
The target cost per bottle is
a.$0.44.
b.$0.60.
c.$0.16.
d.$0.40.
38. Larry Cable Inc. plans to introduce a new product and is using the target cost approach. Projected sales revenue is $810,000 ($4.05 per unit) and target costs are $730,000. What is the desired profit per unit?
a.$0.40
b.$2.03
c.$3.65
d.None of the above
39. Wasson Widget Company is contemplating the production and sale of a new widget. Projected sales are $300,000 (or 75,000 units) and desired profit is $36,000. What is the target cost per unit?
a.$4.00
b.$3.52
c.$4.48
d.$4.80
40. Boomer Boombox Inc. wants to produce and sell a new lightweight radio. Desired profit per unit is $1.84. The expected unit sales price is $22 based on 10,000 units. What is the total target cost?
a.$201,600
b.$220,000
c.$18,400
d.$238,400
41. In cost-plus pricing, the markup consists of
a.manufacturing costs.
b.desired ROI.
c.selling and administrative costs.
d.total cost and desired ROI.
42. The desired ROI per unit is calculated by
a.multiplying the ROI by the investment and dividing by the estimated volume.
b.multiplying the unit selling price by the ROI.
c.dividing the total cost by the estimated volume and multiplying by the ROI.
d.dividing the ROI by the estimated volume and subtracting the result from the unit cost.
43. Bellingham Suit Co. has received a shipment of suits that cost $200 each. If the company uses cost-plus pricing and applies a markup percentage of 60%, what is the sales price per suit?
a.$333
b.$320
c.$280
d.$500
Use the following information for questions 44–47.
Custom Shoes Co. has gathered the following information concerning one model of shoe:
Variable manufacturing costs$40,000
Variable selling and administrative costs$20,000
Fixed manufacturing costs$160,000
Fixed selling and administrative costs$120,000
Investment$1,700,000
ROI30%
Planned production and sales5,000 pairs
44. What is the total cost per pair of shoes?
a.$40
b.$68
c.$168
d.$96
45. What is the desired ROI per pair of shoes?
a.$68
b.$168
c.$102
d.$170
5. Product A is a uniform product manufactured each year in 12 monthly high volume production runs.
Comparison of traditional product costing with ABC
Duo plc produces two products A and B. Each has two components specified as sequentially numbered parts i.e. product A (parts 1 and 2) and product B (parts 3 and 4). Two production depart¬ments (machinery and fitting) are supported by five service activities (material procurement, material handling, maintenance, quality control and set up). Product A is a uniform product manufactured each year in 12 monthly high volume production runs. Product B is manufactured in low volume cus¬tomised batches involving 25 separate production runs each month. Additional information is as follows:
Product A Product B
Production details:
Components Parts 1, 2 Parts 3, 4
Annual volume produced 300 000 units 300 000 units
Annual direct
labour hours:
Machinery department 500 000 DLH - 600 000 DLH
Fitting department 150 000 DLH 200 000 DLH
Overhead Cost Analysis
Overhead Cost Analysis (E000s)
Material handling 1500
Material procurement 2000
Set-up 1500
Maintenance 2500
Quality control 3000
Machinery (machinery power, depreciation etc.) 2500
Fitting (machine, depreciation, power etc.)" 2000
15000
Cost Driver Analysis
Cost Driver Part 1 Part 2 Part 3 Part 4
Material movements 180 160 1 000 1 200
Number of orders 200 300 2 000 4 000
Number of set-ups 12 12 300 300
Maintenance hours 7000 5000 10000 8000
Number of inspections 360 360 2400 1000
Direct labour hours 150000 350000 200000 400000
Direct labour hours 50000 100000 60000 140000
You are required to compute the unit costs for products A and B using (i) a traditional volume-based product costing system and (ii) an activity-based costing system.
6. On June 1 of the current year, Bret Eisen established a business to manage rental property. He...
Transactions
On June 1 of the current year, Bret Eisen established a business to manage rental property. He completed the following transactions during June:
a. Opened a business bank account with a deposit of $30,000 in exchange for capital stock.
b. Purchased office supplies on account, $1,200.
c. Received cash from fees earned for managing rental property, $7,200.
d. Paid rent on office and equipment for the month, $3,000.
e. Paid creditors on account, $750.
f. Billed customers for fees earned for managing rental property, $5,000.
g. Paid automobile expenses (including rental charges) for month, $600, and miscellaneous expenses, $300.
h. Paid office salaries, $1,800.
i. Determined that the cost of supplies on hand was $700; therefore, the cost of supplies used was $500.
j. Paid dividends $1,500.
Instructions
1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings:
Assets -Liabilities+ Stockholder's Equity
Account Accounts Capital Fees Rent Salaries Auto Misc.
cash+ Receivable + Supplies - Payable + Stock - Dividends + Earned - Expense - Expense - Expense - Expense
2. Briefly explain why issuance of capital stock and revenues increased stockholders' equity, while dividends and expenses decreased stockholders' equity.
3. Determine the net income for June.
4. How much did June's transactions increase or decrease retained earnings?
7. Alice, a resident of Michigan, claims that Pet Food Company, Inc. put out some dog food that made...
Alice, a resident of Michigan, claims that Pet Food Company, Inc. put out some dog food that made her dog, Champ, sick. Champ is a prize winning poodle. He survived the pet food fiasco but only after traveling to a veterinarian in Florida specializing in poodles and having two very expensive surgeries. Additionally, his ability to sire has been impaired, and Alice will have no more breeding fees from Champ. Her damages are $80,000. Pet Food Company, Inc., is incorporated in Delaware, with its principal place of business in Michigan. Alice asks you whether she can sue in federal court. What would you tell her and why?
8. Myers Company provides you with the following condensed balance
Myers Company provides you with the following condensed balance sheet information. For each transaction below, indicate the dollar impact (if any) on the following five items: (1) total assets, (2) common stock, (3) paid-in capital in excess of par, (4) retained earnings, and (5) stockholders’ equity. (Each situation is independent.)
(a) Myers declares and pays a $0.50 per share cash dividend.
(b) Myers declares and issues a 10% stock dividend when the market price of the stock is $14 per share.
(c) Myers declares and issues a 30% stock dividend when the market price of the stock is $15 per share.
(d) Myers declares and distributes a property dividend. Myers gives one share of ABC stock for every two shares of Myers Company stock held. ABC is selling for $10 per share on the date the property dividend is declared.
(e) Myers declares a 2-for-1 stock split and issues newshares.
9. Exercise 10-31 Materials Variances Manzana Company produces apple juice sold in gallons....
Exercise 10-31 Materials Variances
Manzana Company produces apple juice sold in gallons. Recently, the company adopted the following material standard for one gallon of its apple juice:
Direct materials 128 oz. @ $0.05 ¼ $6.40
During the first week of operation, the company experienced the following results:
a. Gallon units produced: 20,000.
b. Ounces of materials purchased and used: 2,650,000 ounces at $0.045.
c. No beginning or ending inventories of raw materials.
Required:
1. Compute the materials price variance.
2. Compute the materials usage variance.
3. During the second week, the materials usage variance was $4,000 unfavorable and the mate- rials price variance was $20,000 unfavorable. The company purchased and used 2,000,000 ounces of material during this week. How many gallons of juice were produced and what was the actual price paid per ounce of materials?
10. Sold merchandise on account, $92,500 with terms 1/10, n/30. The cost of the merchandise sold was...
Sales transactions
Journalize the following merchandise transactions:
1. Sold merchandise on account, $92,500 with terms 1/10, n/30. The cost of the merchandise sold was $55,500.
2. Received payment less the discount.
11. Waste management, Inc. Manipulating Accounting estimates LEARNING OBJECTIVES After completing and...
Waste management, Inc. Manipulating Accounting estimates
LEARNING OBJECTIVES After completing and discussing this case you should be able to [1] Recognize risk factors suggesting the presence of the three conditions of fraud [2] Identify financial statement accounts that are based on subjective management estimates [3] Recognize inherent risks associated with accounting estimates [4] Describe auditor responsibilities for assessing the reasonableness of management’s estimatesBACKGROUND Waste Management, Inc.’s Form 10-K filed with the Securities and Exchange Commission (SEC) on March 28, 1997 described the company at that time as a leading international provider of waste management services. According to disclosures in the Form 10-K, the primary source of its business involved providing solid waste management services consisting of collection, transfer, resource recovery, and disposal services for commercial, industrial, municipal, and residential customers, as well as other waste management companies. As part of these services, the company provided paper, glass, plastic, and metal recycling services to commercial and industrial operations and curbside collection of such materials from residences. The company also provided services involving the removal of methane gas from sanitary landfill facilities for use in electricity generation and provided Port-O-Let portable sanitation services to municipalities, commercial businesses, and special event customers. In addition to solid waste management services, the company provided hazardous waste and other chemical removal, treatment, storage, and disposal services. According to information in the Form 10-K, the Oak Brook, Illinois based company was incorporated in 1968. In 28 years of operations, the company had grown to be a leader in waste management services. For the year ended December 31, 1996, the company reported consolidated revenues of $9.19 billion, net income of $192 million, and total assets of $18.4 billion. The company’s stock, which traded around $36 per share in 1996, was listed on the New York Stock Exchange (NYSE), in addition to being listed on the Frankfurt, London, Chicago, and Swiss stock exchanges. Despite being a leader in the industry, the 1996 financial statements revealed that the company was feeling pressures from the effects of changes that were occurring in its markets and in the environmental industry. Although consolidated revenues were increasing, the 1996 Consolidated Statement of Income showed decreasing net income, as summarized on the next page.
According to management’s disclosures in the 1996 Form 10-K, Waste Management, Inc. was encountering intense competition, primarily in the pricing and rendering of services, from various sources in all phases of its waste management and related operations. In the solid waste collection phase, competition was being felt from national, regional, and local collection companies. In addition, the company was competing with municipalities and counties, which through the use of tax revenues were able to provide such services at lower direct charges to the customer than could Waste Management. Also, the company faced competition from some large commercial and industrial companies, which handled their own waste collection. In addition, the company encountered intense competition in pricing and rendering of services in its portable sanitation services business and its on-site industrial cleaning services business. Management noted that the pricing, quality, and reliability of services and the type of equipment utilized were the primary methods of competition in the industry. Over half of the company’s assets as of December 31, 1995 and 1996 involved property and equipment, consisting of land (primarily disposal sites), buildings, vehicles and equipment, and leasehold improvements, with land and vehicles and equipment representing 20% and 27%, respectively, of the company’s total consolidated assets. Disposal sites included approximately 66,400 total acres, which had estimated remaining lives ranging from one to over 100 years based upon management’s site plans and estimated annual volumes of waste. The vehicles and equipment included approximately 21,400 collection and transfer vehicles, 1.6 million containers, and 25,100 stationary compactors. In addition, the Form 10-K stated that the company owned, operated or leased 16 trash-to-energy facilities, eight cogeneration and small power production facilities, two coal handling facilities, three biosolids drying, pelletizing and composting facilities, one wastewater treatment plant and various other manufacturing, office and warehouse facilities. The accounting policies footnote in the 1996 financial statements disclosed that the cost of property and equipment, less estimated salvage value, was being depreciated over the estimated useful lives on the straight-line method as follows:
Other information about the company’s financial position as of December 31, 1996 is shown below in the Consolidated Balance Sheet:
FRUD REVEALED Before the 1997 annual financial statements were released, the company issued a press release on January 5, 1998 announcing that it would file amended reports on Form 10-K and 10-Q for the year ended December 31, 1996 and for the three-month periods ended March 31, 1997 and June 30, 1997. The press release also disclosed management’s plans to revise certain previously reported financial data and to issue revised financial statements for 1994 and 1995 to reflect various revisions of various items of income and expense. The revisions were prompted by a request by the SEC’s Division of Corporation Finance. The January 5th press release noted that the Waste Management board of directors and audit committee were engaged in an extensive examination of its North American operations, assets, and investments as well as a review of certain of its accounting methods and estimates. The company stated further that it was continuing to carefully examine the company’s accounting estimates and methods in several areas, including the areas of vehicle and equipment depreciation and landfill cost accounting. The company also disclosed that it had named a new acting chief executive officer (CEO) and an acting chief financial officer (CFO) to replace the former CEO and CFO, both of whom resigned in 1997. On January 28, 1998, the company issued another press release reporting that the company would restate prior period financial results including earnings for 1992 through 1997 to reflect revisions in various items of expense, including those in the areas of vehicle and equipment depreciation and landfill cost accounting. The January 28, 1998 press release also noted that the restatement would not affect revenues for these periods. Finally, on February 24, 1998, the company publicly reported restated earnings for 1992 through 1996, in addition to reporting its financial results for the year ended December 31, 1997. The press release noted that the 1997 fourth quarter results included a special charge and adjustments to expenses related to the company’s comprehensive examination of its operations and accounting practices. The cumulative charge totaled $2.9 billion after-tax and $3.5 billion pre-tax, which reduced stockholders’ equity to $1.3 billion as of December 31, 1997. The restatement of the 1996 financial results alone took the company from a previously reported net income of $192 million to a restated 1996 net loss of $39 million. The February press release further disclosed that certain items of expense were incorrectly reported in prior year financial statements. According to the release, the restatements principally related to the calculation of vehicle, equipment, and container depreciation expense and capitalized interest costs related to landfills. The company admitted to the use of incorrect vehicle and container salvage values and useful lives assumptions. In response, the company disclosed that it had implemented new, more conservative accounting policies and practices including those related to landfill cost accounting and had adopted a new fleet management strategy impacting vehicle and equipment depreciation and amortization. In particular, the company disclosed that it was adopting new policies that included shortening the depreciable lives for certain categories of assets to reflect their current anticipated useful lives and had eliminated salvage values for trucks and waste containers
