Golf Challenge Corp. is retail sports store carrying golf apparel and equipment

Golf Challenge Corp. is retail sports store carrying golf apparel and equipment. The store is at the end of its second year of operation and is struggling. A major problem is that its cost of inventory has continually increased in the past two years. In the first year of operations, the store assigned inventory costs using LIFO. A loan agreement the store has with its bank, its prime source of financing, requires the store to maintain a certain profit margin and current ratio. The store’s owner is currently looking over Golf Challenge’s preliminary financial statement for its second year. The numbers are not favorable. The only way the store can meet the required financial ratios agreed on with the bank for the required bank is to change from LIFO to FIFO. The store originally decided on LIFO because its tax advantages. The owner recalculates ending inventory using FIFO and submits those numbers and statements to the loan officer at the bank for the required bank review. The owner thankfully reflects on the available latitude in choosing the inventory costing method.

1 How does Golf Challenge’s use of FIFO improve its net profit margin and current ratio?

2 Is the action by Golf Challenge’s owner ethical? Explain.

3 Identify the ethical issue in the case.

4 Identify the affected parties in the case.

5 Identify viable courses of action.

6 Make and justify recommendations for successful resolution of the ethical dilemma.

Here’s the SOLUTION

Posted in Homework Help | Comments Off

During 2014 and 2015, Cook Co. completed the following transactions relating

During 2014 and 2015, Cook Co. completed the following transactions relating to its bond issue. The company’s fiscal year ends on December 31.

2014
Mar. 1 Issued $330,000 of eight-year, 8 percent bonds for $324,000. The semiannual cash payment for interest is due on March 1 and September 1, beginning September 2014.
Sept. 1 Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest.
Dec. 31 Recognized accrued interest expense including the amortization of the discount.
2015
Mar. 1 Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest.
Sept. 1 Recognized interest expense including the amortization of the discount and made the semiannual cash payment for interest.
Dec. 31 Recognized accrued interest expense including the amortization of the discount.

Required

a-1. When the bonds were issued, was the market rate of interest more or less than the stated rate of interest?

a-2. If the bonds had sold at face value, what amount of cash would Cook Co. have received?

b. Prepare the liabilities section of the balance sheet at December 31, 2014 and 2015.

c. Determine the amount of interest expense Cook would report on the income statements for 2014 and 2015.

d. Determine the amount of interest Cook would pay to the bondholders in 2014 and 2015.

Here’s the SOLUTION

Posted in Homework Help | Comments Off

At January 1, 2013, NCI Industries, Inc. was indebted to First Federal Bank

At January 1, 2013, NCI Industries, Inc. was indebted to First Federal Bank under a $290,000, 10% unsecured note. The note was signed January 1, 2011, and was due December 31, 2014. Annual interest was last paid on December 31, 2011. NCI was experiencing severe financial difficulties and negotiated a restructuring of the terms of the debt agreement. First Federal agreed to reduce last year’s interest and the remaining two years’ interest payments to $14,055 each and delay all payments until December 31, 2014, the maturity date. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:

1. Prepare the journal entries by First Federal Bank necessitated by the restructuring of the debt at January 1, 2013. (If no entry is required for a particular transaction, select “No journal entry required” in the first account field.)

2. Prepare the journal entries by First Federal Bank necessitated by the restructuring of the debt at December 31, 2013. (If no entry is required for a particular transaction, select “No journal entry required” in the first account field.)

3. Prepare the journal entries by First Federal Bank necessitated by the restructuring of the debt at December 31, 2014. (If no entry is required for a particular transaction, select “No journal entry required” in the first account field.)

Here’s the SOLUTION

Posted in Homework Help | Comments Off

Jones Sodas adds materials at the beginning of the process in Department A

Jones Sodas adds materials at the beginning of the process in Department A. The following information pertains to Department A’s work in process during April:

    Units

Work in process, April 1 (60% complete as to conversion costs)………………… 6,000

Started in April…………………………………………………………………………………….. 40,000

Completed………………………………………………………………………………………….. 30,000

Work in process, April 30 (40% complete as to conversion costs)……………….16,000

a.         Compute the number of equivalent units for materials using the weighted-average method.

b.         Compute the number of equivalent units for conversion costs using the weighted-average method.

Here’s the SOLUTION

Posted in Homework Help | Comments Off

The Barker Company manufactures two models of adding machines, A and B

The Barker Company manufactures two models of adding machines, A and B. The following production and sales data for the month of June are given for 2014:

PROBLEM DATA

Estimated inventory (units) June 1

A

B

Desired inventory (units) June 30

4,500

2,250

Expected sales volume (units)

4,000

2,500

Unit sales price

7,500

5,000

$75

$120

Prepare a sales budget (4.1A) and a production budget (4.1B) for June 2014.

Here’s the SOLUTION

Posted in Homework Help | Comments Off

Comparative statement data for Lionel Company and Barrymore Company

Comparative statement data for Lionel Company and Barrymore Company, two competitors, appear below. All balance sheet data are as of December 31, 2014, and December 31, 2013.

Lionel Company Barrymore Company
2014 2013 2014 2013
Net sales $1,596,503 $339,169
Cost of goods sold 1,030,220 236,993
Operating expenses 278,162 76,890
Interest expense 7,660 2,180
Income tax expense 60,855 7,220
Current assets 405,098 $388,970 86,818 $ 82,352
Plant assets (net) 595,494 572,424 141,242 126,395
Current liabilities 65,199 74,246 18,350 12,649
Long-term liabilities 102,987 83,543 16,529 11,510
Common stock, $5 par 580,000 580,000 137,000 137,000
Retained earnings 252,406 223,605 56,181 47,588

 

Here’s the SOLUTION

Posted in Homework Help | Comments Off

Triton Company’s copy department, which does almost all of the photocopying for the sales

Triton Company’s copy department, which does almost all of the photocopying for the sales department and the administrative department, budgets the following costs for the year, based on the expected activity of copies:

Salaries (fixed) $83,000
Employee benefits (fixed) 10,000
Depreciation of copy machines (fixed) 10,000
Utilities (fixed) 5,000
Paper (variable, 1 cent per copy) 50,000
Toner (variable, 1 cent per copy) 50,000

The costs are assigned to two cost pools, one for fixed and one for variable costs. The costs are then assigned to the sales department and the administrative department. Fixed costs are assigned on a lump-sum basis, 40 percent to sales and 60 percent to administration. The variable costs are assigned at a rate of 2 cents per copy.

Assuming the following copies were made during the year, 2,737,500 for sales and 3,033,000 for administration, calculate the copy department costs allocated to sales.

Here’s the SOLUTION

Posted in Homework Help | Comments Off

Adarmes Adventures manufactures aluminum canoes

Adarmes Adventures manufactures aluminum canoes. In planning for the coming year, CFO Alexis King is considering three different sales targets: 2,500 canoes, 3,000 canoes, and 3,500 canoes. Canoes sell for $804 each. The standard variable cost information for a canoe is as follows.

Direct materials $ 334
Direct labor 154
Variable overhead
  Utilities 35
  Indirect material 30
  Indirect labor 60
Total $ 613

Annual fixed overhead cost is expected to be:

Maintenance $ 18,830
Depreciation 36,300
Insurance 25,840
Rent 29,110
  Total $ 110,080

Alexis King chose to prepare a static budget based on sales of 3,000 canoes. Actual sales were 3,100 canoes at a price of $854 each. The company incurred the following costs for the year:

Direct material $ 1,013,600
Direct labor 452,300
Variable overhead 398,400
Fixed overhead 117,980
  Total $ 1,982,280

Prepare a performance report for the year that shows the flexible budget and sales volume variances. (If operating income is negative, enter amounts using a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round answers to 0 decimal places, e.g. 125. If variance is zero, select “Not Applicable” and enter 0 for the amounts.)

Sales, revenue, Direct labor, overhead, contribution margin, total variable expenses, operating income, total fixed expenses, direct material, variable expenses. (these fit into the blank)

Here’s the SOLUTION

Posted in Homework Help | Comments Off

Pelligrini, Inc. makes high-quality swimsuits

Pelligrini, Inc. makes high-quality swimsuits. During the year, the company produced 840 suits, using 1,083 yards of material, and the company purchased 897 yards of material for $4,601. The direct materials standard for the swimsuits allows 1.17 yards of material at a standard price of $5 per yard.

Calculate Pelligrini’s direct materials quantity variance for the year. (If variance is zero, select “Not Applicable” and enter 0 for the amounts. Round answer to 0 decimal places, e.g. 15.)

Here’s the SOLUTION

Posted in Homework Help | Comments Off

For 2014, Kasay Company initiated a sales promotion campaign

For 2014, Kasay Company initiated a sales promotion campaign that included the expenditure of an additional $30,000 for advertising. At the end of the year, Scott Brown, the president, is presented with the following condensed comparative income statement:

waac25h_ch17_pr17_2a.gif

1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to net sales for each of the years. Round to one decimal place. Enter all amounts as positive numbers.

Here’s the SOLUTION

Posted in Homework Help | Comments Off