You have been asked by the CFO of your company to evaluatewhether an investment should be made in one of the following threecompanies. Accordingly you are going to evaluate how each companyis performing. 1.) Which company would you recommend? Defend youranswer.
The CFO has provided you with the following data: (Informationin millions)
Company A Company B Company C Sales Revenue $10,000 $12,000 $13,000 Variable Expenses 5,000 7,000 4,000 Fixed Expenses 2,000 3,000 1,000 Operating Income 3,000 4,000 3,000 Assets 11,000 10,000 7,000 Required Purchase Price $12,000 $15,000 $9,000
You have been asked by the CFO of your company to evaluatewhether an investment should be made in one of the following threecompanies. Accordingly you are going to evaluate how each companyis performing. 1.) Which company would you recommend? Defend youranswer.
The CFO has provided you with the following data: (Informationin millions)
Company A | Company B | Company C | |
Sales Revenue | $10,000 | $12,000 | $13,000 |
Variable Expenses | 5,000 | 7,000 | 4,000 |
Fixed Expenses | 2,000 | 3,000 | 1,000 |
Operating Income | 3,000 | 4,000 | 3,000 |
Assets | 11,000 | 10,000 | 7,000 |
Required Purchase Price | $12,000 | $15,000 | $9,000 |
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Recording Transactions (Including Adjusting and Closing Entries), Preparing Financial Statements, and Performing Ratio Analysis
Josh and Kelly McKay began operations of their furniture repair shop (Furniture Refinishers, Inc.) on January 1, 2016. The annual reporting period ends December 31. The trial balance on January 1, 2017, was as follows:
Account Titles | Debit | Credit |
Cash | â5,000 | |
Accounts receivable | â4,000 | |
Supplies | â2,000 | |
Small tools | â6,000 | |
Equipment | ||
Accumulated depreciation (on equipment) | ||
Other assets (not detailed to simplify) | â9,000 | |
Accounts payable | â7,000 | |
Notes payable | ||
Wages payable | ||
Interest payable | ||
Income taxes payable | ||
Unearned revenue | ||
Common stock (60,000 shares, $0.10 par value) | â6,000 | |
Additional paid-in capital | â9,000 | |
Retained earnings | â4,000 | |
Service revenue | ||
Depreciation expense | ||
Wages expense | ||
Interest expense | ||
Income tax expense | ||
Remaining expenses (not detailed to simplify) | ||
âTotals | 26,000 | 26,000 |
Transactions during 2017 follow:
A.Borrowed $20,000 cash on July 1, 2017, signing a one-year, 10 percent note payable.
B.Purchased equipment for $18,000 cash on July 1, 2017.
C.Sold 10,000 additional shares of capital stock for cash at $0.50 market value per share at the beginning of the year.
D.Earned $70,000 in revenues for 2017, including $14,000 on credit and the rest in cash.
E.Incurred remaining expenses of $35,000 for 2017, including $7,000 on credit and the rest paid with cash.
F.Purchased additional small tools, $3,000 cash.
G.Collected accounts receivable, $8,000.
H.Paid accounts payable, $11,000.
I..Purchased $10,000 of supplies on account.
J.Received a $3,000 deposit on work to start January 15, 2018.
K.Declared and paid a cash dividend, $10,000.
Data for adjusting entries:
L.Supplies of $4,000 and small tools of $8,000 were counted on December 31, 2017 (debit Remaining Expenses).
M.Depreciation for 2017, $2,000.
N.Interest accrued on notes payable (to be computed).
O.Wages earned since the December 24 payroll but not yet paid, $3,000.
P.Income tax expense was $4,000, payable in 2018.
Required:
1.Set up T-accounts for the accounts on the trial balance and enter beginning balances.
2.Prepare journal entries for transactions (a) through (k) and post them to the T-accounts.
3.Journalize and post the adjusting entries (l) through (p).
4.Prepare an income statement (including earnings per share rounded to two decimal places), statement of stockholdersâ equity, and balance sheet.
5.Identify the type of transaction for (a) through (k) for the statement of cash flows (O for operating, I for investing, F for financing), and the direction and amount of the effect.
6.Journalize and post the closing entry.
7.Compute the following ratios (rounded to two decimal places) for 2017 and explain what the results suggest about the company:
a,Current ratio
b,Total asset turnover
c,Net profit margin
Hello,
When attempting to access the Study Guide/Workbook to AccompanyManagerial Accounting (1st edition), I need assistance. In thet-tables, h. is showing to be $46,700. However when I read h. atthe top for given data, it reads "completed all jobs but one; thejob cost sheet for this job shows $2100 for direct materials $2000for direct labor $4100 applied overhead". Can you please help me tounderstand where the $46700 is coming from? Is there a formula? Iam trying to complete the work in process inventory and finishedgoods inventory t-tables.
Thank you in advance for your assistance.
Question:
Study Guide/Workbook to accompany Managerial Accounting (1stEdition)
Chapter 2, Problem 5PSA
Problem
Recording Manufacturing Costs and AnalyzingManufacturing Overhead
Christopherâs Custom Cabinet Company uses a job order costingsystem with overhead applied as a percentage of direct labor costs.Inventory balances at the beginning of 2009 follow:
Raw materials inventory | $15,000 |
Work in process inventory | 5,000 |
Finished goods inventory | 20,000 |
The following transactions occurred during January:
(a) Purchased materials on account for $26,000.
(b) Issued materials to production totaling $22,000, 90percent of which was traced to specific jobs and the remaindertreated as indirect materials.
(c) Payroll costs totaling $15,500 were recorded asfollows:
$10,000 for assembly workers
3,000 for factory supervision
1,000 for administrative personnel
1,500 for sales commissions
(d) Recorded depreciation: $6,000 for machines, $1,000for office copier.
(e) Had $2,000 in insurance expire, allocated equallybetween manufacturing and administrative expenses.
(f) Paid $6,500 in other factory costs in cash.
(g) Applied manufacturing overhead at a rate of 200percent of direct labor cost.
(h) Completed all jobs but one; the job cost sheet forthis job shows $2,100 for direct materials, $2,000 for directlabor, and $4,000 for applied overhead.
(i) Sold jobs costing $50,000; the company usescost-plus pricing with a markup of 30 percent.
Required:
1.Set up T-accounts, record the beginningbalances, post the January transactions, and compute the finalbalance for the following accounts:
Raw Materials Inventory
Work in Process Inventory
Finished Goods Inventory
Cost of Goods Sold
Manufacturing Overhead
Selling and Administrative Expenses
Sales Revenue
Other accounts (Cash, Payables, etc.)
2. Determine how much gross profit the companywould report during the month of January beforeany adjustment is made for the overhead balance.
3. Determine the amount of overâor underappliedoverhead.
4. Compute adjusted gross profit assuming thatany overâor underapplied overhead balance is adjusted directly toCost of Goods Sold.
Step-by-step solution
Step 1 of 1
Req. 1
Raw Materials Inventory | Work in Process Inventory | Finished Goods Inventory | |||
1/1 15,000 | b. 22,000 | 1/1 5,000 | h. 46,700 | 1/1 20,000 | i. 50,000 |
a. 26,000 | b. 19,800 | h. 46,700 | |||
Bal. 19,000 | c. 10,000 | Bal. 16,700 | |||
g. 20,000 | |||||
Bal. 8,100 |
Cost of Goods Sold | Manufacturing Overhead | Selling and Administrative Expenses | |
i. 50,000 | b. 2,200 | g. 20,000 | c. 2,500 |
c. 3,000 | d. 1,000 | ||
d. 6,000 | e. 1,000 | ||
e. 1,000 | Bal. 4,500 | ||
f. 6,500 | |||
Bal. 1,300 Overapplied |
Sales Revenue | Other Accounts (Cash, Payables, etc.) | ||
i. 65,000 | i. 65,000 | a. 26,000 | |
c. 15,500 | |||
d. 7,000 | |||
e. 2,000 | |||
f. 6,500 | |||
Bal. 8,000 |
Supporting Calculations:
b. Direct Materials $22,000 x 90% = $19,800;
Indirect Materials $22,000 x 10% =$2,200
c. Selling and administrative salaries = $1,000 + $1,500 =$2,500
g. Applied manufacturing overhead = $10,000 X 200% = $20,000
h. Ending Balance in WIP = $2,100 + $2,000 + $4,000 = $8,100
Cost of Goods Manufactured = $5,000 +$19,800 + $10,000 + $20,000 - $8,100 =
$46,700
i. Sales Revenue = $50,000 X 1.3 = $65,000
Req. 2
Unadjusted gross profit = $65,000 - $50,000 = $15,000
Req. 3
Manufacturing overhead is $1,300 overapplied.
Req. 4
Adjusted gross profit = $65,000 â ($50,000 - $1,300) =$16,300
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