Given the following information on S & G Inc.’s capital structure, compute

1. Given the following information on S & G Inc.’s capital structure, compute the company’s weighted average cost of capital.

Type of Percent of Before-Tax
Capital Capital Structure Component Cost

Bonds 40% 7.5%
Preferred Stock 5% 11%
Common Stock (Internal Only) 55% 15%

The company’s marginal tax rate is 40%. (Points : 1)
13.3%
7.1%
10.6%
10%

2. Asian Trading Company paid a dividend yesterday of $5 per share (D0 = $4). The dividend is expected to grow at a constant rate of 8% per year. The price of Asian Trading Company’s stock today is $29 per share. If Asian Trading Company decides to issue new common stock, flotation costs will equal $2.50 per share. Asian Trading Company’s marginal tax rate is 35%. Based on the above information, the cost of retained earnings is (Points : 1)

28.38%.
24.12%.
26.62%.
31.40%.

3. Five Rivers Casino is undergoing a major expansion. The expansion will be financed by issuing new 15-year, $1,000 par, 9% annual coupon bonds. The market price of the bonds is $1,070 each. Gamblers flotation expense on the new bonds will be $50 per bond. Gamblers marginal tax rate is 35%. What is the pre-tax cost of debt for the newly-issued bonds? (Points : 1)

8.76%
8.12%
7.49%
10.25%

4. A new machine can be purchased for $1,200,000. It will cost $35,000 to ship and $15,000 to modify the machine. A $12,000 recently completed feasibility study indicated that the firm can employ an existing factory owned by the firm, which would have otherwise been sold for $180,000. The firm will borrow $750,000 to finance the acquisition. Total interest expense for 5-years is expected to approximate $350,000. What is the investment cost of the machine for capital budgeting purposes? (Points : 1)

$2,180,000
$1,780,000
$1,442,000
$1,430,000

5. Zinc, Inc. is considering the acquisition of a new processing line. The processor can be purchased for $4,550,000. It will cost $65,000 to ship and $190,500 to install the processor. A recently completed feasibility study that was performed at a cost of $45,000 indicated that the processor would produce a positive NPV. Studies have shown that employee-training expenses will be $150,000. What is the total investment in the processing line for capital budgeting purposes? (Points : 1)

$4,550,000
$4,700,000
$4,955,500
$5,000,500

6. Porky Pine Co. is issuing a $1,000 par value bond that pays 8.5% interest annually. Investors are expected to pay $1,100 for the 12-year bond. Porky will pay $50 per bond in flotation costs. What is the after-tax cost of new debt if the firm is in the 35% tax bracket? (Points : 1)

8.23%
4.55%
4.70%
7.45%

7. Nickel Industries is considering the purchase of a new machine that will cost $178,000, plus an additional $12,000 to ship and install. The new machine will have a 5-year useful life and will be depreciated using the straight-line method. The machine is expected to generate new sales of $85,000 per year and is expected to increase operating costs by $10,000 annually. Nickel’s income tax rate is 40%. What is the projected incremental cash flow of the machine for year 1? (Points : 1)

$54,800
$60,200
$66,350
$68,200

8. Clanton Company is financed 75 percent by equity and 25 percent by debt. If the firm expects to earn $30 million in net income next year and retain 40% of it, how large can the capital budget be before common stock must be sold? (Points : 1)

$7.5 million
$12.0 million
$15.5 million
$16.0 million

9. A project for Jevon and Aaron, Inc. results in additional accounts receivable of $400,000, additional inventory of $180,000, and additional accounts payable of $70,000. What is the additional investment in net working capital? (Points : 1)

$580,000
$510,000
$270,000
$150,000

10. Kelly Corporation will issue new common stock to finance an expansion. The existing common stock just paid a $1.50 dividend, and dividends are expected to grow at a constant rate 8% indefinitely. The stock sells for $45, and flotation expenses of 5% of the selling price will be incurred on new shares. What is the cost of new common stock be for Kelly Corp.? (Points : 1)

11.33%
11.51%
11.60%
11.79%
12.53

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Gamma Inc. is considering the replacement of an existing machine (ANSWER KEY)

Gamma Inc. is considering the replacement of an existing machine. The new machine costs $1.8 million and requires installation costs of $250,000. The existing machine can be sold currently for $125,000 before taxes. The existing machine is 3 years old, cost $1 million when purchased, and has a $290,000 book value and a remaining useful life of 5 years. It was being depreciated under MACRS using a 5-year recovery period. If it is held for 5 more years, the machine’s market value at the end of year 5 will be zero. Over its 5-year life, the new machine should reduce operating costs by $650,000 per year, and will be depreciated under MACRS using a 5-year recovery period. The new machine can be sold for $150,000 net of removal and cleanup costs at the end of 5 years. A $30,000 increase in net working capital will be required to support operations if the new machine is acquired. The firm has adequate operations against which to deduct any losses experienced on the sale of the existing machine. The firm has a 15% cost of capital, is subject to a 40% tax rate and requires a 42-month payback period for major capital projects.

Should they accept or reject the proposal to replace the machine? What is the NPV? What is the IRR? What is the payback period?

Use the following table for depreciation:

5-Year MACRS

Year 1      20%

Year 2      32%

Year 3      19%

Year 4      12%

Year 5      12%

Year 6      5%

Required

Use the Excel template on the class webpage (Capital Budgeting Template.xls) and analyze the scenario above.

Answer the questions (Should they accept or reject the proposal to replace the machine? What is the NPV? What is the IRR? What is the payback period?)

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Read Case Study Mead Meals on Wheels Center – Part I (A+ Guaranteed)

Operational Analysis

Read Case Study Mead Meals on Wheels Center—Part I (from Chapter 4) and Part II (from Chapter 5).  Using the information in the case study problems, especially Problem 3 (from Part II), discuss the following:

MMWC buys the equipment to expand their services. Present a recommendation supporting the type of financial impact the expansion of services will have on MMWC.

Clearly label the calculation of the impact of food costs and the financial impact costs. Use formulas to calculate the costs and format the cells to insert a comma if there is more than three numbers and round to the nearest whole number.

Submit to your instructor your two-to-three page Word document (not including title and reference pages) and your Excel worksheet. Your paper should be formatted according to APA style as outlined in the approved APA style guide, and you must cite at least two scholarly sources in addition to the textbook.

CASE STUDY Mead Meals on Wheels Center—Part I

Problem 1
The Mead Meals on Wheels Center (MMWC) provides two meals per day to the homebound elderly.  The Town of Millbridge pays MMWC $32 per week for each person it services for the week. Each person receives 14 meals for the week. There is no shortage of demand for MMWC’s services among the elderly citizens of Millbridge and MMWC can find qualified recipients for as many meals as it can deliver.

To service the contract, MMWC has a central kitchen which can produce a maximum of 9,600 meals per day. It costs MMWC an average of $36,000 per week to operate the kitchen and MMWC’s other central facilities regardless of the number of meals that MMWC serves. This covers all of MMWC’s fixed costs (i.e., rent, equipment costs, and its personnel including administrative staff) as well as its fixed contract costs (e.g., utilities, snow removal).

The first problem that MMWC faces is figuring out how much it can afford to spend per person, per week for food to supply the program. Food is MMWC’s only variable expense. You are MMWC’s only financial analyst and your boss has asked you to decide what to do.

Executive Director Marty Purtell has asked you to calculate how much MMWC can spend per week per person on food and still break even. What do you tell her?

Problem 2
Using your work to define MMWC’s spending limit, the executive director prepared a request for bids and sent it to all of the food purveyors in and near Millbridge. The best bid came in at $.50 below the number that you have calculated as MMWC’s break-even per person-week.166167Using this bid and the information given in the preceding problem, the director wants you to prepare a budget for MMWC in a format that will allow her to monitor MMWC’s performance on a quarterly basis for the coming year.

For budgeting, the director has told you to assume that there are 13 weeks in each quarter. You know from your experience that the fixed expenses for the organization vary by season.  Fixed costs average $38,000 per week in the winter (first quarter), $34,000 per week in the second quarter, $35,000 in the third quarter, and $37,000 in the fourth quarter.

Prepare an operating budget for the next four quarters of operation for the director and summarize it (provide totals) for the full year.

Problem 3
During the year, you analyzed Mead Meals on Wheels Center’s (MMWC’s) kitchen operations and determined that MMWC could increase the capacity of the kitchen to 10,400 meals per day. You see a chance to increase the number of meals that MMWC can deliver to the elderly as well as a way to increase your weekly revenue. However, expanding the kitchen’s capacity will require you to purchase $625,000 worth of equipment. The equipment has a useful life of five years.

Just as you started your analysis of the expansion, a food purveyor from outside the Millbridge city limits responded to MMWC’s request for bids and gave the Center a bid that was $.75 per person-week below the quote that was used in your original budget. That is a full $1.25 below the break-even level that you calculated.

The executive director is interested in any idea that will expand service delivery, but she is concerned about being able to pay for the equipment. She tells you that MMWC’s cost of capital is 12 percent. She has instructed you to use the new food bid as your cost per person-week for food. She only wants to buy the new equipment if it generates enough additional contribution to pay for itself, taking into account the time value of money.

If MMWC buys the equipment to expand their services, will that expansion have a positive financial impact? Support your recommendation and present your findings in a way that the director will understand. (Hint: You must separate the impact of the change in the cost of food, from the financial impact of the investment.)

Here’s the SOLUTION

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Read Case Study “Mead Meals on Wheels” (A+ Guaranteed)

Read Case Study “Mead Meals on Wheels”

Case Study Mead Meals on Wheels

The Mead Meals on Wheels Center (MMWC) provides meals every day to the homebound elderly. The city of Wabash pays MMWC $32 per week for each person it serves. There is no shortage of demand for MMWC’s services among the elderly citizens of Wabash, and MMWC can find qualified recipients for as many meals as it can deliver. Each person helped by MMWC receives two hot meals per day, seven days per week, for a total of 14 meals every week.

To service the contract, MMWC has a central kitchen that has the capacity to produce a maximum of 9,600 meals per day. It costs MMWC an average of $36,000 per week to operate the kitchen and other central facilities regardless of the number of meals that MMWC serves. This covers all of MMWC’s fixed costs (e.g., rent, equipment costs, and its personnel including administrative staff) as well as its fixed seasonal service contract costs (utilities, snow removal, etc.).

The first problem that MMWC faces is figuring out how much it can afford to spend per person, per week for food to supply the program. Food is MMWC’s only variable expense. You are MMWC’s only program analyst.

Question 1: The executive director has come to you to calculate how much MMWC can spend per week, per person and still break even. What do you tell the executive director?

Using your work to define MMWC’s spending limit, the executive director prepared a request for bids and sent it to all of the food purveyors in and near Wabash. The best bid came in at $.50 (fifty cents) below the number that you have calculated as MMWC’s break-even per person-week. Using the lowest bid and the information given earlier, the executive director wants you to prepare a budget for MMWC in a format that will allow her to monitor MMWC’s performance on a quarterly basis for the coming year.

For budgeting purposes, the executive director has told you to assume that there are 13 weeks in each quarter. You know from your experience that the fixed expenses for the organization vary by season. Fixed costs average $38,000 per week in the winter (1st quarter), $34,000 per week in the second quarter, $35,000 in the third quarter, and $37,000 in the fourth quarter.

Question 2: Prepare a budget for the next four quarters of operation for the executive director and summarize it for the full year.

The first quarter of operation was in the midst of a very severe winter. As a result, MMWC was only able to get food to 4,600 people per week on average. In addition, the cold weather and snow caused MMWC to exceed the limits of its snowplowing and heating oil contracts. As a result, MMWC’s fixed costs were $2,000 per week above what you had forecast. Luckily, a food purveyor from outside the Wabash city limits responded to MMWC’s request for bids just before the quarter began and gave MMWC a bid that was $.75 (seventy-five cents) per person-week below the quote that was used in your budget. That is a full $1.25 below the break-even level that you calculated.

The executive director knows that something has happened because the budgeted numbers and the actual results that she sees on her quarterly operating statement don’t match. She wants you to tell her why.

Question 3: Prepare an analysis of variances for the first quarter of the year to help her understand what caused the differences between the results. Provide her with as much detail as you can given the available information, that is, volume variance, price variance, and quantity variance. Be sure to indicate whether those variances were favorable or unfavorable. Don’t forget to look at the fixed-cost variance as well.

a. Prepare a revenue variance analysis.

b. Prepare a food expense variance analysis.

c. Calculate the net impact of the severe winter weather and lower food prices on MMWC’s first quarter result. Was MMWC better off or worse off?

d. Was the overall aggregate variance large enough to have a significant impact on MMWC during the first quarter? Is it significant when compared to projected annual profits or losses?

During the year, you conducted an analysis of MMWC’s kitchen operations and determined that you could increase the capacity of the kitchen to 10,400 meals per day. You see a chance to increase the number of meals that MMWC can deliver to the elderly, as well as a way to increase your weekly revenue. However, expanding the kitchen’s capacity will require you to purchase $700,000 worth of equipment. The equipment has a useful life of five years. The executive director is interested in any idea that will expand service delivery. But, she is concerned about being able to pay for the equipment. She tells you that MMWC’s cost of capital is 9 percent and asks if MMWC should purchase the equipment.

Question 4: What do you tell her? Support your recommendation and present your findings in a way that the executive director will understand.

a.Assuming that you pay your suppliers quarterly and that you are paid by Wabash quarterly, what would you recommend doing?

b.Would your answer be different if you were paid by Wabash and pay your suppliers weekly? Annually?

You finish your capital budget analysis just in time to prepare the operating budget for the coming year. The executive director wants you to use last year’s budget as a starting point but to update it to reflect the higher fixed costs that occurred during this year’s winter operations (i.e., the first quarter). In addition, she has decided to accept your recommendation about the equipment. If you decide to go ahead with the purchase, a local bank will lend MMWC the full purchase price of the equipment and only charge MMWC for interest during the first year of the loan. Interest on the loan would be set at 8 percent per year. MMWC’s normal policy is to assume a 10 percent residual value on all kitchen equipment and to depreciate it over five years on a straight-line basis.

Question 5: Incorporating all of the things that have happened during the year, as well as your capital budgeting recommendation, prepare a new quarterly budget and an annual summary for MMWC for the coming year.

Question 6: Given the profits that MMWC expects to produce in the next fiscal year, should it expand and feed more people? Why has it chosen not to feed more than 5,200 people? What would be required to expand MMWC beyond its current level of operations?

Using the information in the case study, discuss the following:

MMWC buys the equipment to expand their services. Present a recommendation supporting the type of financial impact the expansion of services will have on MMWC.

Clearly label the calculation of the impact of food costs and the financial impact costs. Use formulas to calculate the costs and format the cells to insert a comma if there is more than three numbers and round to the nearest whole number.

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DeVry Acct 346 Final Exam (A+ Guaranteed)

DeVry Acct 346 Final Exam

 

Question 1. (TCO 4) Assumptions underlying cost-volume-profit analysis include all of the following, except:

all costs can be divided into fixed and variable elements.
total variable costs are directly proportional to volume over the relevant range.
selling prices are to be unchanged.
sales price is the only relevant factor affecting cost.

Question 2. (TCO 6) A basic assumption of activity-based costing (ABC) is that:

All manufacturing costs vary directly with units of production.
Products or services require the performance of activities, and activities consume resources.
Only costs that respond to unit-level drivers are product costs.
Only variable costs are included in activity-cost pools.

Question 3. (TCO 2) In a traditional job order cost system, the use of direct labor on jobs increases:

stores.
work in process.
factory overhead.
finished goods.

Question 4. (TCO5) Cost drivers are:

activities that cause costs to increase as the activity increases.
accounting measurements used to evaluate whether or not performance is proceeding according to plan.
a mechanical basis, such as machine hours, computer time, size of equipment, or square footage of factory used to assign activities.
Costs linked to two or more other costs.

Question 5. (TCO 8) Wood Co. has considerable excess manufacturing capacity. A special job order’s cost sheet includes the following applied manufacturing overhead costs:
Fixed costs: 25,000
Variable costs: 36,000
The fixed costs include a normal $4,500 allocation for in-house design costs, although no in-house design will be done. Instead, the job will require the use of external designers costing $9,250. What is the total amount to be included in the calculation to determine the minimum acceptable price for the job?

$40,500
$45,250
$61,000
$65,750

Question 6. (TCO 1) Who are the users of managerial accounting information? How does their use of accounting information differ from the users of financial accounting information?

Question 7. (TCO 2) Wolf Co. estimates that its employees will work 400,000 direct labor hours during the coming year. Total overhead costs are estimated to be $9,600,000 and direct labor costs are estimated to be $12,500,000. Direct Labor hours are actually 450,000.

If Wolf Co. allocates overhead based on direct labor HOURS, what is the predetermined overhead rate?

Question 1. (TCO 3) The Mixing Department is the third department in the MZS Inc. factory. During January, there were 4,000 units of beginning inventory in the Mixing Department, and 80,000 units were transferred in from the prior process. There were 8,000 units in ending inventory. The transferred-in cost in the beginning inventory was $170,000 and there was $600,000 in transferred-in cost during the month.

What is the cost per equivalent unit for transferred-in cost?

Question 2. (TCO 4) Assume that we are manufacturing a product and assume that the sales price per unit is $80, the variable cost is $20 per unit, and the fixed cost is $90,000; a) how many units would we need to sell to break even? b) How many units would we need to sell to earn a profit of $120,000? c) How many units do we need to sell to double that profit to $240,000? D) Why didn’t the number of units double from Part B to Part C?

Question 3. (TCO 5) Sivan Co. manufactures and sells one product. For the year, they started with no opening inventory; produced 100,000 units, but only sold 70,000 units. The selling price per each unit is $60.

The variable costs per unit were:
Direct materials…………………….7
Direct Labor ………………………..6
Variable manufacturing overhead ….5
Variable selling and administrative…6
Fixed costs per year:
Fixed manufacturing Overhead …………….$700,000
Fixed Selling and Administrative expenses.. $300,000

(a) Prepare the Income Statement using Absorption Costing.
(b) Prepare the Income Statement using Variable Costing.

Question 4. (TCO 6) At Long Co., electricity cost starts with a minimum fixed cost, and after that, there is a perfectly variable expense. Using estimated machine hours:

Machine hours             Cost
50,000                             $102,000
60,000                             $122,000

What is the a) estimated variable cost per machine hour and what is the b) estimated TOTAL fixed cost?

Question 5. (TCO 7) North Company produces a small part that it uses in the production of its Product “H”. The company’s unit product cost for the part, based on a production of 100,000 parts per year, is as follows:

………………………………………….Per part ………………..Total
Direct Materials………………………. $7.00………..$700,000
Direct Labor …………………………….6.00…………$600,000
Variable Manufacturing Overhead 2.00………..$200,000
Plus:
Fixed manufacturing Overhead, (Traceable or avoidable) $325,000 TOTAL, equal to $3.25 per unit
Fixed manufacturing Overhead,( Common—not traceable to any product. Will stay even if no product is manufactured) allocated on basis of labor-hours 5.75)     $575,000 Total

Unit Product Cost……………………… $24.00 (7+ 6+ 2, variable of $15. Plus Fixed  3.25+ 5.75=9, total)

An outside supplier has offered to supply parts to the North Company for only $21.25 per part.(it appears to the President of the company that he could save $2.75 per unit.
100 percent of the traceable or avoidable fixed manufacturing cost is supervisor salaries and other costs that can be ELIMINATED if the parts are purchased. The decision to buy the parts from the outside supplier would have no effect on the common fixed costs of the company, and the space being used to produce the parts would otherwise be idle. Ignore the impact of income taxes in your calculation.

How much would profits increase or decrease as a result of purchasing the parts from the outside supplier rather than making them inside the company?

Question 6. (TCO 9) Harry Corp buys equipment for $194,000 that will last for 9 years. The equipment will generate cash flows of $36,000 per year and will have no salvage value at the end of its life. Ignore taxes. Use 10% required rate of return.

(a) What is the Present Value (PV) of this investment (at 10%)?

(b) What is the NET Present Value (NPV) of this investment Should you buy the equipment if you need 10%?

(c) What is the Internal Rate of Return (IRR) of this investment?
(d) What is the payback period?

Question 7. (TCO 10)  Tanya Corp sells its products on both credit and cash basis. Monthly sales are sold 20% for cash, 80% for credit. Credit sales are collected 65% in the month of sale and 35% the following month. Sales for the first quarter are BUDGETED as follows: January $300,000; February $200,000; March $300,000.

Compute cash collections budgeted for February. How much cash was collected in the month?

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ACCT202- AC Speed Version 5.1 FALL (A+ Guaranteed)

ACCT202- AC Speed Version 5.1 FALL

 

The book is: Accounting Principles, ninth edition by Weygandt, Kimmel, and Kieso

The AC Speed Company is a well-established, publicly-held corporation, operating as a wholesaler in the auto parts industry. Specifically, AC Speed purchases auto parts from manufacturers and sells them to large business customers. Most purchases and sales are on account, with trade credit terms (specified below).

You’re a Davenport University student pursuing a bachelor’s degree in business and employed at the AC Speed Company this semester as an intern. You’ve worked in various departments and on several projects so far, learning a lot about the company’s business operations. Management seems impressed with your enthusiasm and the quality of your work.

JULY JOURNAL TRANSACTIONS

1-Jul Issued 8,200 shares of common stock for $11 per share (Refer to Chart of Accounts GL for description of common stock).

1-Jul Signed a two year 14%, $216,000 note payable with Fifth Third Bank.

1-Jul Sold 1500 speakers on account to GM for $112 each, Invoice #2301

1-Jul Purchased 2800 rearview mirrors on credit from Gentex for $45 each.

2-Jul Rented idle warehouse space to a new tenant and received $15,000 for three months rent. (July – October)

2-Jul Sold 250 rearview mirrors on account to Honda for $105 each, Invoice #2302

3-Jul Purchased 3450 speakers on credit from Bose for $72 each.

3-Jul Sold 1300 GPS units on account to Toyota for $65 each, Invoice #2303

4-Jul 60 defective speakers were returned from GM. A credit was issued to the customer.

5-Jul The 60 defective speakers were returned to Bose.

6-Jul Paid $650 for equipment repair. Check # 7000

7-Jul Reimbursed employees for entertainment expenses totaling $300. Check # 7001

8-Jul Paid June utility bill of $1850. Check # 7002

8-Jul Purchased office supplies from Staples on credit for $700.

11-Jul Paid in full for the July 1 purchase from Gentex. Check # 7003

11-Jul Received payment from GM on remaining balance for July 1st sale

12-Jul The Board of Directors declared a cash dividend of $0.50 per share for shareholders of record on July 14th, payable on July 20th.

12-Jul Purchased 3100 GPS units from Garmin for $28 each on credit.

12-Jul Received payment in full from Honda for July 2nd sale.

13-Jul Paid in full for the July 3rd purchase from Bose, Check # 7004

13-Jul Received payment in full from Toyota for July 3nd sale

15-Jul Check # 7005 was issued for payroll: $23,750 for salaries and $1,925 for wages

17-Jul Bought new Office Furniture for $15,600. Furniture use begins in August. Check # 7006

19-Jul 1550 GPS units purchased on July 12th from Garmin were found to be the wrong model. All 1550 units were returned.

19-Jul Paid $1400 bill for phone survey performed by marketing consultant, Check # 7007

20-Jul Received $122,500 from Ford for June 5th sales.

20-Jul Paid $21,000 mortgage payment to Fifth Third Bank ($6,000 principal and $15,000 interest), Check # 7008.

20-Jul Paid the dividend that was declared on July 12, Check # 7009

22-Jul Paid the remaining balance on the purchase from Garmin on July 12th. Check #7010

23-Jul General Motors declared bankruptcy. $10,000 receivable from General Motors was written off .

25-Jul Received $119,050 payment from Toyota for sale on June 11th.

26-Jul Purchased 800 shares of Treasury Stock for $15 per share, Check # 7011 (cost method)

26-Jul Sold 425 speakers to Honda for $114 each, Invoice # 2304

27-Jul Paid Gentex $40,000 for June 27 purchase, Check # 7012

27-Jul Sold 1850 Rearview mirrors to Ford for $89 each, Invoice # 2305

28-Jul Issued bonds payable at face value for $ 485,000

29-Jul Paid Bose $137,740 for balance due in June, Check # 7013

29-Jul Check #7014 was issued for payroll: $ 20,500 for salaries and $ 3,560 for wages

30-Jul Received and paid legal service invoice of $9,025, Check # 7015

31-Jul Paid the first month’s principal of $25,000 plus interest for notes issued at the beginning of the month. Check # 7016

*All purchases on account terms of 3/10, net 30

**All credit sales have terms of 3/10, net 45

July Month-end Adjustments:

( A ) AC Speed estimates bad debt expense on a monthly basis rather than waiting until year-end. The company uses the allowance method. Based on recent industry estimates, AC Speed estimates that the estimate of bad debt expense should be 1.5% of total sales.

( B ) The balance in the Prepaid Insurance account at the beginning of July represents 6 months of coverage. Record the amount of insurance expense for July. (p.102)

( C ) AC Speed has earned one month of the rent prepaid by their tenant at the beginning of July. (pp. 104-105)

( D ) The Company took a physical inventory count on July 31 and found the following inventory on hand:
Merchandise Inventory – $310,000 (p.211)

( E ) The Company took a physical count of Office Supplies on July 31 and found the following to be on hand:
Office Supplies – $2,415 (p.101)

( F ) Depreciation on the company’s fixed assets for the month of July is as follows:
1. The furniture and equipment for the warehouse purchased a few years ago cost $10,000. These assets have a 10-year life, with $1500 salvage value, and are depreciated using the straight-line method. (p.444)
2. The furniture and equipment for the office was purchased last year for $8,500. These assets have a 5 year life, an expected salvage value of $1,500, and are depreciated using double declining method.
3.The new office furniture purchased in July has a 5 year life with a $500 salvage value, and is depreciated using the straight line method

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Ziad Company had a beginning inventory on January 1 of 150 units of Product

Ziad Company had a beginning inventory on January 1 of 150 units of Product 4-18-15 at a cost of $20 per unit. During the year, the following purchases were made.

Mar. 15 400 units at $23  Sept. 4 350 units at $26
July  20 250 units at $24  Dec.  2 100 units at $29

1,000 units were sold. Ziad Company uses a periodic inventory system.

Instructions
a) Determine the cost of goods available for sale.
b) Determine (1) the ending inventory, and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods.
c) Which cost flow method results in (1) the highest inventory amount for the balance sheet, and (2) the highest cost of goods sold for the income statement?

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Latona Hardware Store completed the following merchandising transactions

Latona Hardware Store completed the following merchandising transactions in the month of May. At the beginning of May, the ledger of Latona showed Cash of $5,000 and Common Stock of $5,000.

May  1  Purchased merchandise on account from Gray’s Wholesale Supply $4,200, terms 2/10, n/30.
2  Sold merchandise on account $2,100, terms 1/10, n/30. The cost of the merchandise sold was $1,300.
5 Received credit from Gray’s Wholesale Supply for merchandise returned $300.
9  Received collections in full, less discounts, from customers billed on sales of $2,100 on May 2.
10 Paid Gray’s Wholesale Supply in full, less discount.
11 Purchased supplies for cash $400.
12 Purchased merchandise for cash $1,400.
15  Received refund for poor quality merchandise from supplier on cash purchase $150.
17  Purchased merchandise from Amland Distributors $1,300, FOB shipping point, terms 2/10, n/30.
19 Paid freight on May 17 purchase $130.
24 Sold merchandise for cash $3,200. The merchandise sold had a cost of $2,000.
25  Purchased merchandise from Horvath, Inc. $620, FOB destination, terms 2/10, n/30.
27 Paid Amland Distributors in full, less discount.
29  Made refunds to cash customers for defective merchandise $70. The returned merchandise had a fair value of $30.
31  Sold merchandise on account $1,000 terms n/30. The cost of the merchandise sold was $560.

Latona Hardware’s chart of accounts includes the following: No. 101 Cash, No. 112 Accounts Receivable, No. 120 Inventory, No. 126 Supplies, No. 201 Accounts Payable, No. 311 Common Stock, No. 401 Sales Revenue, No. 412 Sales Returns and Allowances, No. 414 Sales Discounts, and No. 505 Cost of Goods Sold.

Instructions
a) Journalize the transactions using a perpetual inventory system.
b) Enter the beginning cash and common stock balances and post the transactions. (Use J1 for the journal reference.)
c) Prepare an income statement through gross profit for the month of May 2015.

Here’s the SOLUTION

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The completed financial statement columns of the worksheet for Fleming Company

The completed financial statement columns of the worksheet for Fleming Company are shown on below.


Instructions
a) Prepare an income statement, a retained earnings statement, and a classified balance sheet.
b) Prepare the closing entries.
c) Post the closing entries and underline and balance the accounts. (Use T-accounts.) Income Summary is account No. 350.
d) Prepare a post-closing trial balance.

Here’s the SOLUTION

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Kaleta Company reports the following for the month of June

Kaleta Company reports the following for the month of June.

Instructions
a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO and (2) LIFO.
b) Which costing method gives the higher ending inventory? Why?
c) Which method results in the higher cost of goods sold? Why?

Here’s the SOLUTION

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