Mastering Financial Reporting: Guide for Accounting Student
5. You are the chief accountant of Deighton plc, which manufactures a wide range of building and...
You are the chief accountant of Deighton plc, which manufactures a wide range of building and plumbing fittings. It has recently taken over a smaller unquoted competitor, Linton Ltd. Deighton is currently checking through various documents at Linton s head office, including a number of investment appraisals. One of these, a recently rejected application involving an outlay on equipment of £900,000, is reproduced below. It was rejected because it failed to offer Linton s target return on investment of 25 per cent (average profit-to-initial investment outlay). Closer inspection reveals several errors in the appraisal. Evaluation of profitability of proposed project NT17 (all values in current year prices) You discover the following further details: 1 Linton s policy was to finance both working capital and fixed investment by a bank overdraft. A 12 per cent interest rate applied at the time of the evaluation. 2 A 25 per cent writing-down allowance (WDA) on a reducing balance basis is offered for new investment. Linton s profits are sufficient to utilise fully this allowance throughout the project. 3 Corporation tax is paid a year in arrears. 4 Of the overhead charge, about half reflects absorption of existing overhead costs. 5 The market research was actually undertaken to investigate two proposals, the other project also having been rejected. The total bill for all this research has already been paid. 6 Deighton itself requires a nominal return on new projects
6. CLOSING CASE: Exporting and Growth for Small Businesses Morgan Motors is one of the iconic small...
CLOSING CASE: Exporting and Growth for Small Businesses
Morgan Motors is one of the iconic small businesses of the United Kingdom. The company has been making its classic sports cars since the 1909. Today some 150 employees build up to 700 cars a year, each of which sells for $40,000 to $100,000. However, Morgan’s niche is so small that it could not survive if it did not export. Today some 70 percent of its production is shipped overseas, primarily to the United States and Europe. Moreover, the modern Morgan car, although looking every bit the British sports car, contains major components that are imported from foreign manufacturers, such as engines from BMW and components for ABS breaking systems from Bosch.
Morgan is not alone. Many other small businesses have found that exports can drive growth. Another success story is Wadia, a Michigan-based manufacturer of high-end premium-priced compact disc players for audiophiles. Wadia, with annual sales of $8 million, makes approximately 70 to 80 percent of its sales overseas. Around 35 to 35 percent of sales come from Asia, with both Japan and China accounting for as much as 15 percent of sales volume in any one year. Like Morgan, Wadia’s high-end product is so specialized that it could not survive on sales in its home country alone.
Exporting, however, is not easy, particularly for smaller enterprises like Morgan and Wadia. Many succeed only after tapping into help from government export agencies and export financing institutions. Consider Malden Mills, the United States manufacturer of Polartech®, a high-technology textile material used in premium-priced outdoor wear, with annual revenues in the $50 million range. Facing limited growth opportunities in the United States, Malden Mills contracted with the South Carolina Export Consortium, a state agency, to perform an international market analysis to determine the sales potential of its portfolio of high-tech fabrics. Malden Mills used the consortium’s research to identify new opportunities for its materials, forecast future demand trends, and secure a $20 million working capital loan guarantee from the U.S. Export–Import Bank (which was later raised to $35 million). The resulting expansion in export sales to France, Korea, and the United Kingdom allowed Malden Mills to better utilize its capacity and to continue to make textile products in the United States, despite the fact that the industry as a whole has been in rapid decline due to globalization and the rise of low-cost manufacturers in developing nations. Today over half of Malden Mills’ sales are due to exports.
Write a three- to four-page paper, excluding the title and reference pages, with a detailed analysis that answers the following:
- Examine the main benefits of exporting products for companies like Morgan and Wadia. Present examples of the benefits.
- Explain the sustainability of a company like Morgan Motors if it neither exported nor imported products.
- Give examples of impediments to exporting success for companies such as Morgan and Wadia, and assess which steps these companies can take to improve their probability of succeeding in export markets.
- Explain the legitimacy for local and national government agencies to use taxpayer money to assist small companies in the effort to export. Determine how taxpayer money can help local economies.
In addition to the required text, which is Hill, W.L. (2011). International Business: Competing in the global marketplace (8th ed.). New York: McGraw-Hill Irwin, provide at least one additional scholarly source to support your point. Your paper should be formatted in APA style as outlined in the Ashford Writing Center.
preview of the answer…
Exporting is the selling of products of companies outside the countries that the companies operate. Exporting, therefore, offers the companies market within wider areas than it would have been if the company only sold the products within their countries. Companies import and export the raw materials they use and products for a variety of reasons. For the case of Morgan and Wadia, the reasons for exporting are similar. All of them can be summed as to survive. Therefore, exporting of products by companies is important and should be supported by various institutions of the government for the benefit of not only the investors but also the country in general….
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7. 11) Some service department activities support customers rather than the production process. These..
11) Some service department activities support customers rather than the production process. These costs are traced directly to ________ instead of ________.
A) products; producing departments
B) producing departments; service departments
C) customers; producing departments
D) service departments; producing departments
12) If the vast majority of costs were directly traceable to cost objects, then cost allocation would be a minor issue.
13) Companies must assign all production costs and only production costs to products for external financial reporting purposes.
14) Companies must assign all value chain costs to products for internal financial reports.
15) Examples of service departments in a hospital include the housekeeping and laundry departments.
16) Cubic feet are the logical cost driver for depreciation expense from heating and air conditioning equipment. The cost object is the assembly department in a factory.
17) The logical cost driver for building rent cost of $10,000 is square feet. The cost object is the assembly department in a factory.
12.2 Questions
1) When allocating service department costs to producing departments, which of the following guidelines is NOT followed?
A) Allocate variable- and fixed-cost pools separately.
B) Establish the cost-allocation procedure before rendering the service.
C) Evaluate performance using flexible budgets for each service department.
D) Establish the cost-allocation procedure after rendering the service.
2) The Computer Department in a large company provides services to many departments. The cost driver for costs in the Computer Department is the number of computer hours. When allocating variable costs of the Computer Department to a user department, which of the following formulas is used?
A) actual computer hours used × (total budgeted variable costs of Computer Department / total budgeted computer hours of Computer Department)
B) budgeted computer hours to be used × (total budgeted variable costs of Computer Department/ total budgeted computer hours of Computer Department)
C) actual computer hours used × (total actual variable costs of Computer Department/ total actual computer hours of Computer Department)
D) budgeted computer hours to be used × (total actual variable costs of Computer Department/ total budgeted computer hours of Computer Department)
3) The Computer Department in a large company provides services to many departments. The cost driver for costs in the Computer Department is the number of computer hours. When allocating fixed costs of the Computer Department to a user department such as Department A, which of the following formulas is used?
A) budgeted fixed cost × (budgeted hours to be used by Department A/total available capacity hours of Computer Department)
B) budgeted fixed cost × (actual hours used by Department A/total available capacity hours of Computer Department)
C) actual fixed cost × (budgeted hours to be used by Department A/total available capacity hours of Computer Department)
D) actual fixed cost × (actual hours used by Department A/total available capacity hours of Computer Department)
8. Clark Textiles Company manufactures various wood products that yield sawdust as a by-product. The...
(Accounting for by-products) Clark Textiles Company manufactures various wood products that yield sawdust as a by-product. The only costs associated with the sawdust are selling costs of $6 per ton sold. The company accounts for sales of sawdust by deducting sawdust"s net realizable value from the major product"s cost of goods sold. Sawdust sales in 2000 were 12,000 tons at $40 each. If Clark Textiles changes its method of accounting for sawdust sales to show the net realizable value as other revenue (presented at the bottom ofthe income statement), how would its gross margin be affected?
9. Happy Trails Park, Inc. was organized on April 1, 2013, by Alicia Henry. Alicia is a good manager...
Happy Trails Park, Inc. was organized on April 1, 2013, by Alicia Henry. Alicia is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Alicia prepared the following income statement for the quarter that ended March 31, 2014.Alicia thought that something was wrong with the statement because net income had never exceeded $20,000 in any one quarter. Knowing that you are an experienced accountant, she asks you to review the income statement and other data.You first look at the trial balance. In addition to the account balances reported above in the income statement, the ledger contains the following additional selected balances at March 31, 2014.Supplies ………. $ 6,200Prepaid Insurance …… 7,500Notes Payable …….. 12,000You then make inquiries and discover the following.1. Rent revenue includes advanced rentals for summer occupancy $14,000.2. There were $1,450 of supplies on hand at March 31.3. Prepaid insurance resulted from the payment of a one-year policy on January 1, 2014.4. The mail on April 1, 2014, brought the following bills: advertising for week of March 24, $130; repairs made March 10, $260; and utilities, $120.5. There are four employees, who receive wages totaling $300 per day. At March 31, 2 days’ salaries and wages have been incurred but not paid.6. The note payable is a 3-month, 10% note dated January 1, 2014.InstructionsWith the class divided into groups, answer the following.(a) Prepare a correct income statement for the quarter ended March 31, 2014.(b) Explain to Alicia the generally accepted accounting principles that she did not recognize in preparing her income statement and their effect on herresults.
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Happy Trails Park Inc was organized on April 1 2013
10. ABC Company Ltd., proposes to issue 10,000, 14% debentures of Rs.100 each to its shareholders on...
ABC Company Ltd., proposes to issue 10,000, 14% debentures of Rs.100 each to its shareholders on right basis. They give you the following terms of issue and ask you to pass the journal entries in every case separately:
(i) The debentures were issued at premium of 10% and redeemable at par.
(ii) The debentures were issued at discount of 5% and redeemable at premium of 10%.
(iii) The debentures were issued at par but redeemable at premium of 10%.
(iv) The debentures were issued at premium of 5% but repayable at premium of 10%.
(v) The debentures were issued at discount of 5% but redeemable at par.
11. Jean Erickson, manager and owner of an advertising company in Charlotte, North Carolina, arranged...
Case 2-55 Cost Information and Ethical Behavior, Service Organization
Jean Erickson, manager and owner of an advertising company in Charlotte, North Carolina, arranged a meeting with Leroy Gee, the chief accountant of a large, local competitor. The two are lifelong friends. They grew up together in a small town and attended the same university. Leroy is a competent, successful accountant but is having some personal financial difficulties after some of his investments turned sour, leaving him with a $15,000 personal loan to pay off— just when his oldest son is starting college.
Jean, on the other hand, is struggling to establish a successful advertising business. She had recently acquired the rights to open a branch office of a large regional advertising firm headquar- tered in Atlanta, Georgia. During her first 2 years, she was able to build a small, profitable prac- tice. However, the chance to gain a significant foothold in Charlotte hinged on the success of winning a bid to represent the state of North Carolina in a major campaign to attract new industry and tourism. The meeting she had scheduled with Leroy concerned the bid she planned to submit.
Jean: Leroy, I’m at a critical point in my business venture. If I can win the bid for the state’s advertising dollars, I’ll be set. Winning the bid will bring $600,000 to $700,000 of revenues into the firm. On top of that, I estimate that the publicity will bring another $200,000 to $300,000 of new business.
Leroy: I understand. My boss is anxious to win that business as well. It would mean a huge increase in profits for my firm. It’s a competitive business, though. As new as you are, I doubt that you’ll have much chance of winning.
Jean: You’re forgetting two very important considerations. First, I have the backing of all the resources and talent of a regional firm. Second, I have some political connections. Last year, I was hired to run the publicity side of the governor’s campaign. He was impressed with my work and would like me to have this business. I am confident that the proposals I submit will be very competitive. My only concern is to submit a bid that beats your firm. If I come in with a lower bid and good proposals, the governor can see to it that I get the work.
Leroy: Sounds promising. If you do win, however, there will be a lot of upset people. After all, they are going to claim that the business should have been given to local advertisers, not to some out-of-state firm. Given the size of your office, you’ll have to get support from Atlanta. You could take a lot of heat.
Jean: True. But I am the owner of the branch office. That fact alone should blunt most of the criticism. Who can argue that I’m not a local? Listen, with your help, I think I can win this bid. Furthermore, if I do win it, you can reap some direct benefits. With that kind of business, I can afford to hire an accountant, and I’ll make it worthwhile for you to transfer jobs. I can offer you an up-front bonus of $15,000. On top of that, I’ll increase your annual salary by 20%. That should solve most of your financial difficulties. After all, we have been friends since day one— and what are friends for?
Leroy: Jean, my wife would be ecstatic if I were able to improve our financial position as quickly as this opportunity affords. I certainly hope that you win the bid. What kind of help can I provide?
Jean: Simple. To win, all I have to do is beat the bid of your firm. Before I submit my bid, I would like you to review it. With the financial skills you have, it should be easy for you to spot any excessive costs that I may have included. Or perhaps I included the wrong kind of costs. By cutting excessive costs and eliminating costs that may not be directly related to the project, my bid should be competitive enough to meet or beat your firm’s bid.
Required:
1. What would you do if you were Leroy? Fully explain the reasons for your choice. What do you suppose the code of conduct for Leroy’s company would say about this situation?
2. What is the likely outcome if Leroy agrees to review the bid? Is there much risk to him per- sonally if he reviews the bid? Should the degree of risk have any bearing on his decision?
12. In August 2002, a pricing dispute arose between the managers of some of the divisions of Zumwald AG.
In August 2002, a pricing dispute arose between the managers of some of the divisions of Zumwald AG. Mr. Rolf Fettinger, the company s managing director, had to decide whether to intervene in the dispute. Questions 1. What sourcing decision for the X73 materials is in the best interest of: a. The Imaging Systems Division? b. The Heidelberg Division? c. The Electronic Components Division? d. Zumwald AG? 2. What should Mr. Fettinger do regarding the X73 sourcing issue? 3. Can a system be designed to motivate each of Zumwald s division managing directors to take actions that are not only in the interest of their division but also in the best interest of Zumwald? Explain.
13. 41) Kind to Animals (KTA) is a NFP that operates an animal shelter and commenced operations in 20X9.
41) Kind to Animals (KTA) is a NFP that operates an animal shelter and commenced operations in 20X9. KTA has a December 31 year end. In 20X9, the organization received $1.5 million to build a new shelter which was completed in October, 20X9. The shelter is expected to have a useful life of 40 years. This was financed with $800,000 of private donations and $700,000 of government grants. In addition, $150,000 was provided in government grants on October 1, 20X9 to fund two veterinarians for the next twelve months. Two veterinarians were hired October 1, 20X9 at an annual salary of $120,000 each. The organization is expected to generate $1,250,000 in annual revenues. During the period October 1 to December 31, KIA received donations of $275,000 and paid out operating expenses of $235,000.
Required:
Prepare a partial statement of financial position to capture the above transactions occurring during 20X9. KIA uses the deferral method and does not have a separate capital fund. .
42) Baseball for All (BFA) is a non-profit organization that runs baseball tournaments and clinics for all ages. It also buys equipment that is needed at the tournaments. It receives government funding from the municipality and tournament and clinic fees that are paid by participants. Generally, annual revenues have been $350,000. This year, BFA received a special grant of $150,000 to buy new equipment. Equipment in the amount of $180,000 was purchased. The equipment is expected to last 5 years.
Required:
Discuss the various methods that BFA can use to record the purchase of the equipment allowed under Canadian GAAP and prepare the appropriate journal entries. As part of your explanation, explain the differences between the expenditure basis and expense basis of reporting.