Excel in Every Quiz: Expert Guidance for Accounting Mastery
On January 1, 2011, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $200,000 in long-term liabilities and 20,000 shares of common stock having a par value of $1 per share but a fair value of $10 per share.
Marshall paid $30,000 to accountants, lawyers, and brokers for assistance in the acquisition and another $12,000 in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows:
Marshall Company Book Value
Tucker Company Book Value
Cash
$60,000
$20,000
Receivables
270,000
90,000
Inventory
360,000
140,000
Land
200,000
180,000
Buildings (net)
420,000
220,000
Equipment (net)
$160,000
$50,000
Accounts payable
150,000
40,000
Long-term liabilities
430,000
200,000
Common stock—$1 par value
110,000
Common stock—$20 par value
120,000
Additional paid-in capital
360,000
–0–
Retained earnings, 1/1/11
420,000
340,000
In Marshall’s appraisal of Tucker, it deemed three accounts to be undervalued on the subsidiary’s books: Inventory by $5,000, Land by $20,000, and Buildings by $30,000. Marshall plans to maintain Tucker’s separate legal identity and to operate Tucker as a wholly owned subsidiary.
a. Determine the amounts that Marshall Company would report in its postacquisition balance sheet. In preparing the postacquisition balance sheet, any required adjustments to income accounts from the acquisition should be closed to Marshall’s retained earnings.
b. To verify the answers found in part (a), prepare a worksheet to consolidate the balance sheets of these two companies as of January 2011.
41. 7-49 LO 5, 7 The following information shows the past two periods of results for a fictional...
7-49 LO 5, 7 The following information shows the past two periods of results for a fictional company, Jones Manufacturing, and a com- parison with industry data for the same period:
ANALYTICAL DATA FOR JONES MANUFACTURING
Prior Period (000 omitted)
Percent of Sales
Current Period (000 omitted)
Percent of Sales
Percent Change
Industry Average as a Percent of Sales
Sales
$10,000
100
$11,000
100
10
100
Inventory
$2,000
20
$3,250
29.5
57.5
22.5
Cost of goods sold
$6,000
60
$6,050
55
0.83
59.5
Accounts payable
$1,200
12
$1,980
18
65
14.5
Sales commissions
$500
5
$550
5
10
Not available
Inventory turnover
6.3
—
4.2
—
(33)
5.85
Average number of days to collect
39
—
48
—
23
36
Employee turnover
5%
—
8%
—
60
4
Return on investment
14%
—
14.3%
—
13.8
Debt/Equity
35%
—
60%
—
71
30
a. From the preceding data, identify potential risk areas and explain why they represent potential risk. Briefly indicate how the risk analysis should affect the planning of the audit engagement.
b. Identify any of the above data that should cause the auditor to increase the level of professional skepticism.
1.) Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%, salary allowances of $27,000 and $18,000 respectively, and the remainder equally. How much of the net income of $40,000 is allocated to Xavier? Answer: A) $22,000 B) $32,000 C) $0 D) $20,000 2.) Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%, salary allowances of $38,000 and $28,000 respectively, and the remainder equally. How much of the net income of $75,000 is allocated to Xavier? Answer: A) $66,000 B) $40,000 C) $35,000 D) $43,000
43. 1. Which of the sales force structures discussed in the text best describes P&G’s CBD structure?...
1. Which of the sales force structures discussed in the text best describes P&G’s CBD structure? 2. From the perspective of team selling, discuss the positive as well as some possible negative aspects to the customer business development sales organization. 3. Visit www.mypgcareer.com/activity/customer.html to learn more about the P&G CBD organization. Based on information on this Web site and information in this case, discuss the importance of recruiting, training, and compensation in making the CBD structure more effective. 4. Discuss some ways that the CBD structure may be more effective than a single sales rep for each step in the personal selling process. 5. It seems that P&G has the most effective sales force structure of any company in its industry. Why have competitors not been able to match it? It seems that when it comes to personal selling, the term “win-win” gets thrown around so much that it has become a cliché. But at Procter & Gamble, the sales concept that the company benefits only as much as the customer benefits is a way of life. Since William Procter and James Gamble formed a family-operated soap and candle company in 1837, P&G has understood that if the customer doesn’t do well, neither will the company.
44. Based on the data above, at what level of stocks would a replenishment order be issued?
A domestic appliance retailer with multiple outlets stocks a popular toaster known as the Autocrisp 2000, for which the following information is available:
Average sales
75 per day
Maximum sales
95 per day
Minimum sales
50 per day
Lead time
12-18 days
Re-order quantity
1750
(i) Based on the data above, at what level of stocks would a replenishment order be issued?
A 1050 B 1330 C 1710 D 1750
(ii) Based on the data above, what is the maximum level of stocks possible?
A 1750 B 2860 C 3460 D 5210
45. Kropf Inc. has provided the following data concerning one of the products in its standard cost sy...
Kropf Inc. has provided the following data concerning one of the products in its standard cost system. Variable manufacturing overhead is applied to products on the basis of direct labor-hours.
Inputs
Standard Quantity or Hours per Unit of Output
Standard Price or Rate
Direct materials
7.90
liters
$
7.50
per liter
Direct labor
0.50
hours
$
26.70
per hour
Variable manufacturing overhead
0.50
hours
$
6.40
per hour
The company has reported the following actual results for the product for September:
Actual output
10,100
units
Raw materials purchased
75,500
liters
Actual cost of raw materials purchased
$
605,500
Raw materials used in production
79,800
liters
Actual direct labor-hours
4,770
hours
Actual direct labor cost
$
130,302
Actual variable overhead cost
$
23,814
Required:
a. Compute the materials price variance for September.
b. Compute the materials quantity variance for September.
c. Compute the labor rate variance for September.
d. Compute the labor efficiency variance for September.
e. Compute the variable overhead rate variance for September.
f. Compute the variable overhead efficiency variance for September.
(Input all amounts as positive values.)
46. Create a data flow diagram of the current system.
Walker Books, Inc., is one of the fastest-growing book distributors in the United States. Established in 1981 in Palo Alto, California, Walker Books was originally a side project of founder and current president Curtis Walker, who at the time was employed by a local law firm. Because reading was much more than just a hobby of his, he decided to use some of his savings to buy an abandoned restaurant and convert it into a neighborhood bookstore, mainly selling used books that were donated and obtained from flea markets. When the doors first opened, Walker’s wife, Lauren, was the only employee during the week and Curtis worked weekends. At the end of the first fiscal year, Walker Books had grossed $20,000 in sales. As the years passed, Curtis Walker quit the law firm and began concentrating fully on his bookstore. More employees were hired, more books were traded in, and more sales were attained each year that passed. During the mid-1990s, however, Walker was faced with two problems: many large, upscale bookstores were being built in the area, and the use of the Internet for finding and ordering books was becoming cheaper and more popular for current customers. In 1995, Walker’s sales started to decline. Deciding to take a risk because of the newfound competition, he closed his doors to the neighborhood, invested more money to expand the current property, and transformed his company from simply selling used books to being a distributor of new books. His business model was to obtain books from publishers at a discount, store them in his warehouse, and resell them to large bookstore chains. Walker Books, Inc., has rapidly become one of the largest book distributors in the country. Although they are still at their original location in Palo Alto, California, they distribute books to all 50 states and because of that, the company now sees gross sales of about $105,000,000 per year. When Mr. Walker is asked about his fondest memory, he always responds that he will never forget how the little bookstore, with two employees, has expanded to now have more than 145 employees. Under his current business model, all of Walker’s customers are large-chain bookstores who themselves see many millions of dollars in revenue per year. Some of these customers, however, are now experiencing problems with Walker Books that threaten their business relationship. Such problems as books being ordered but not sent, poor inventory management by Walker causing stock-outs, and the inability of Walker to provide legitimate documentation of transactions have become common. One potential source of these problems rests with Walker’s antiquated accounting system, which is a combination of manual procedures supported by stand-alone PC workstations. These computers are not networked and cannot share data between departments. All interdepartmental communication takes place through hardcopy documents. You have been hired as an independent expert to express an opinion on the appropriateness of Walker Books’ business processes and internal controls. The expenditure cycle is described next. Expenditure Cycle Purchases System The purchases process begins with the purchasing agent, who monitors the levels of books available via a computer terminal listing current inventory. Upon noticing deficiencies in inventory levels, the agent manually generates four hard copies of a purchase order: one is sent to accounts payable, one is sent to the vendor, one is sent to the receiving department, and the last is filed within the department. Vendors will generally ship the products within five business days of the order. When goods arrive in the receiving department, the corresponding packing slip always accompanies them. The receiving department clerk unloads the goods and then reconciles the packing slip with the purchase order. After unloading the goods, the clerk manually prepares three hard copies of the receiving report. One copy goes with the goods to the warehouse, another is sent to the purchasing department, and the final copy is filed in the receiving department. In the warehouse, the copy is simply filed once the goods are stored on the shelves. In the purchasing department, the clerk receives this copy of the receiving report and files it with the purchase order. When the accounts payable department receives the purchase order, it is temporarily filed until the respective invoice arrives from the vendor. Upon receipt of the invoice, the accounts payable clerk removes the purchase order from the temporary file and reconciles the two documents. The clerk then manually records the liability in the hard copy accounts payable subsidiary ledger. Finally, the clerk files the purchase order and invoice in the open accounts payable file in the department. At the end of the day, the clerk prepares a hardcopy journal voucher and sends it to the general ledger department. Once the general ledger department receives the journal voucher, the clerk examines it for any obvious errors and then enters the relevant data into the department PC to update the appropriate digital general ledger accounts. Cash Disbursements System The accounts payable clerk periodically reviews the open accounts payable file for liabilities that are due. To maximize returns on invested cash yet still take advantage of vendor discounts, the clerk will pull the invoice two days before its applicable due date. Upon finding an open accounts payable file in need of payment, the clerk manually prepares a check for the amount due as per the invoice. The hard copy accounts payable ledger is also updated by the accounts payable clerk. The check number, dollar amount, and other pertinent data are manually recorded in the hard-copy check register. The check is then sent to the cash disbursements department. Finally, the invoice is discarded as it no longer has any relevant information that hasn’t already been recorded elsewhere. When the cash disbursements clerk receives the unsigned check, she examines it to ensure that no one has tampered with any of the information and that no errors have been made. Because she is familiar with all of the vendors with whom Walker deals, she can identify any false vendors or any payment amounts that seem excessive. Assuming everything appears in order, she signs the check using a signature block that displays the name of the assistant treasurer, Tyler Matthews. Only Matthews’ signature can validate a vendor check. The cash disbursements clerk then photocopies the check for audit trail purposes. Once the check is signed, it is sent directly to the supplier. The photocopy of the check is marked as paid and then filed in the cash disbursements department. The clerk then creates a journal voucher, which is sent to the general ledger department. Once the general ledger department receives the journal voucher, the clerk examines it for any obvious errors and then enters the relevant data into the department PC to update the appropriate digital general ledger accounts.
Required
a. Create a data flow diagram of the current system.
b. Create a system flowchart of the existing system.
c. Analyze the internal control weaknesses in the system. Model your response according to the six categories of physical control activities specified in SAS 78/COSO.
d. Prepare a system flowchart of a redesigned computer based system that resolves the control weaknesses you identified. Explain your solution.
47. Alma’s Payroll Services Company entered into the following transactions during May 2020. 1....
Alma’s Payroll Services Company entered into the following transactions during
May 2020.
1. Purchased computers for $15,000 from Bytes of Data on account.
2. Paid $3,000 cash for May rent on storage space.
3. Received $12,000 cash from customers for contracts billed in April.
4. Performed payroll services for Magic Construction Company for $2,500 cash.
5. Paid Northern Ohio Power Co. $7,000 cash for energy usage in May.
6. Alma invested an additional $25,000 in the business.
7. Paid Bytes of Data for the computers purchased in (1) above.
8. Incurred advertising expense for May of $900 on account.
Instructions
Indicate with the appropriate letter whether each of the transactions above results in:
a. an increase in assets and a decrease in assets.
b. an increase in assets and an increase in owner’s equity.
c. an increase in assets and an increase in liabilities.
d. a decrease in assets and a decrease in owner’s equity.
e. a decrease in assets and a decrease in liabilities.
f. an increase in liabilities and a decrease in owner’s equity.
g. an increase in owner’s equity and a decrease in liabilities.
48. On August 31, 2010, the following data were accumulated to
On August 31, 2010, the following data were accumulated to assist the accountant in preparing the adjusting entries for Cobalt Realty: (a) Fees accrued but unbilled at August 31 are $9,560. (b) The supplies account balance on August 31 is $3,150. The supplies on hand at August 31 are $900. (c) Wages accrued but not paid at August 31 are $1,200. (d) The unearned rent account balance at August 31 is $9,375, representing the receipt of an advance payment on August 1 of three months’ rent from tenants. (e) Depreciation of office equipment is $1,600. Instructions 1. Journalize the adjusting entries required at August 31, 2010. 2. Briefly explain the difference between adjusting entries and entries that would be made to correct errors.
Selected transactions for M. Acosta, an interior decorator, in her fi rst month of business,
are as follows.
Jan. 2 Invested $10,000 cash in business.
3 Purchased used car for $3,000 cash for use in business.
9 Purchased supplies on account for $600.
11 Billed customers $2,400 for services performed.
16 Paid $350 cash for advertising.
20 Received $900 cash from customers billed on January 11.
23 Paid creditor $300 cash on balance owed.
28 Withdrew $1,000 cash for personal use by owner.
Instructions
For each transaction, indicate the following.
a. The basic type of account debited and credited (asset, liability, owner’s equity).
b. The specifi c account debited and credited (Cash, Rent Expense, Service Revenue, etc.).
c. Whether the specifi c account is increased or decreased.
d. The normal balance of the specifi c account.
Use the following format, in which the January 2 transaction is given as an example
Acquisition Price
Phillips Company bought 40 percent ownership in Jones Bag Company on January 1, 20X1, at underlying book value. In 20X1, 20X2, and 20X3, Jones Bag reported the following:
Year
Net Income
Dividends
20X1
$ 8,000
$15,000
20X2
12,000
10,000
20X3
20,000
10,000
The balance in Phillips Company’s investment account on December 31, 20X3, was $54,000.
Required
In each of the following independent cases, determine the amount that Phillips paid for its investment in Jones Bag stock assuming that Phillips accounted for its investment using the ( a ) cost method and ( b ) equity method