Answer:
The correct answer to the following question will be Option B (Moral hazard).
Explanation:
Moral hazard happens whenever one individual takes further chances as the responsibility of such consequences rests with somebody else.
Fred suffered from some kind of blockage of the nasal tissues that could have been resolved for around 2 months either by a procedure and via medical attention. Fred's doc warned him plainly the problem wasn't serious so he doesn't need an operation.However, Fred concentrated on either the blockage becoming surgically removed, becoming mindful that his private policy would fund the full cost of this operation.The other given options are not related to the given scenario. So that the condition outlined here could be related to the "Moral hazard" issue.
An analysis of comparative balance sheets, the current year’s income statement, and the general ledger accounts of Wellman Corp. uncovered the following items. Assume all items involve cash unless there is information to the contrary.
1. Indicate how each item should be classified in the statement of cash flows using these four major classifications: operating activity (indirect method), investing activity, financing activity, and significant noncash investing and financing activity.
(a) Payment of interest on notes payable.
(b) Exchange of land for patent.
(c) Sale of building at book value.
(d) Payment of dividends.
(e) Depreciation.
(f) Receipt of dividends on investment in stock.
(g) Receipt of interest on notes receivable.
(h) Issuance of common stock.
(i) Amortization of patent.
(j) Issuance of bonds for land.
Answer and Explanation:
The classification are as follows
(a) Payment of interest on notes payable = Operating activities as cash outflow
(b) Exchange of land for patent = Non cash investing activity as it does not involve cash transactions
(c) Sale of building at book value = Investing activities as cash inflow which is represented in a positive sign
(d) Payment of dividends. = Financing activities as cash outflow which is represented in a negative sign
(e) Depreciation = It is added to net income and shown in operating activities
(f) Receipt of dividends on investment in stock = Operating activities as cash inflow
(g) Receipt of interest on notes receivable = Operating activities as cash inflow
(h) Issuance of common stock = Financing activities as cash outflow
(i) Amortization of patent = Operating activities as cash inflow and added to the net income
(j) Issuance of bonds for land = Non cash investing activity as it does not involve cash transactions
Answer:
The classification are as follows
(a) Payment of interest on notes payable = Operating activities as cash outflow
(b) Exchange of land for patent = Non cash investing activity as it does not involve cash transactions
(c) Sale of building at book value = Investing activities as cash inflow which is represented in a positive sign
(d) Payment of dividends. = Financing activities as cash outflow which is represented in a negative sign
(e) Depreciation = It is added to net income and shown in operating activities
(f) Receipt of dividends on investment in stock = Operating activities as cash inflow
(g) Receipt of interest on notes receivable = Operating activities as cash inflow
(h) Issuance of common stock = Financing activities as cash outflow
(i) Amortization of patent = Operating activities as cash inflow and added to the net income
(j) Issuance of bonds for land = Non cash investing activity as it does not involve cash transactions
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Explanation:
Match each scenario with the source of monopoly market power.
1. Mary McFly invents a time machine and gets legal protection from competition.
2. Main Line Utilities can operate at a lower cost than multiple electric companies.
3. The author of Economics for Dumbbells is given exclusive rights to produce this book.
4. Your city council gives All Talk Communication Services exclusive rights to build high speed internet infrastructure in your town.
5. DeJeers Jewelers owns 80% of the world's diamond mines.
Options:
O PatentO Economies of ScaleO Control over ResourcesO Government licencingO Copyright
Answer:
1. Mary McFly invents a time machine and gets legal protection from competition. Patent
2. Main Line Utilities can operate at a lower cost than multiple electric companies. Economies of Scale
3. The author of Economics for Dumbbells is given exclusive rights to produce this book. Copyright
4. Your city council gives All Talk Communication Services exclusive rights to build high speed internet infrastructure in your town.Government licencing
5. DeJeers Jewelers owns 80% of the world's diamond mines. Control over Resources
Explanation:
A monopoly is when there's only one firm operating in an industry.
Economies of scale is cost reduction that accures to a firm as a result of its large scale production. For example, a supplier might give a producer a discount for buying in bulk.
A patent is when the government or an agency of the government gives the right to produce an invention or a good for a set period, others are usually excluded making, using or selling the invention.
Copyright gives the owner of an intellectual property the exclusive right to make copies of a creative work, usually for a limited time.
If a firm has exclusive access to resocurces, it is possible for the firm to prevent other firms from entering into the industry and thus retain monopoly power.
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Suppose Charles and Dina are playing a game in which both must simultaneously choose the action Left or Right. The payoff matrix that follows shows the payoff each person will earn as a function of both of their choices. For example, the lower-right cell shows that if Charles chooses Right and Dina chooses Right, Charles will receive a payoff of 7 and Dina will receive a payoff of 4.
Dina
Left Right
Charles Left 6,3 6,4
Rigt 3,3 7,4
Required:
a. The only dominant strategy in this game is for_______ to choose _____
b. The outcome reflecting the unique Nash equilibrium in this game is as follows: Charles chooses_______ and Dina choose ______
Answer and Explanation:
As per the data given in the question,
a) Dominant strategy is that strategy in which a player chooses strategy irrespective of the strategy which other player has already chosen.
For Charles, If Dina chooses right he will choose right because payoff is higher (6 > 3) but if Dina chooses left he will choose left because payoff is
is higher (7>6) So, he doesn't have any strategy.
For Dina, he will choose right because it gives highest payoff whether Charles choose right or left.
The dominant strategy is for Dina to choose right.
b)
The outcome matching the unique Nash equilibrium in this game is :
Nash equilibrium is that in which both players will chose after keeping in mind the other players' strategy.
Here equilibrium is :
Charles chooses right(while Dina chooses Right) and Dina chooses right (while Janet chooses right).
Concord Company, a machinery dealer, leased manufacturing equipment to Mays Corporation on January 1, 2017. The lease is for a 7-year period and requires equal annual payments of $26,143 at the beginning of each year. The first payment is received on January 1, 2017.
Concord had purchased the machine during 2016 for $75,000. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Concord. Concord set the annual rental to ensure an 8% rate of return.
The machine has an economic life of 8 years with no residual value and reverts to Concord at the termination of the lease.
Required:
1. Compute the amount of the lease receivable. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)
2. Prepare all necessary journal entries for Headland for 2017. (Round answers to decimal places e.g. 5,125.)
Answer and Explanation:
1. The computation of lease receivable is shown below:-
Amount of Lease Receivable = Present value amount i.e calculated by using the present value formula shown in the spreadsheet
Given that
Rate = 8%
NPER = 7 years
PMT = $26,143
FV = $0
The formula is
= -PV(RATE;NPER;PMT;FV;TYPE)
After applying this above formula, the present value is $146,998.94
2. Now The Journal entry is shown below:-
a. Lease Receivable A/c Dr, $146,998.94
Cost of Goods Sold Dr, $75,000
To Inventory A/c $75,000
To Sales $146,998.94
(Being lease receivable is recorded)
Here we debited the lease receivables and cost of goods sold as it increased the assets and expenses and we credited the inventory and sales as it reduced the assets and increased the revenues
b. Cash A/c Dr, $26,143
To Lease receivable A/c $26,143
(Being the first payment of lease is recorded)
For recording this we debited the cash as it increased the sales and credited the lease receivables as it decreased the assets
c. Interest Receivable A/c Dr, $9,668.432 {($146,998.4 - $26,143) × 8%}
To Interest Income A/c $9,668.432
(Being accrued interest is recorded)
For recording this we debited the cash as it increased the sales and credited the interest income and it increased the revenue
Without checking the facts, a broker who is the seller�s agent tells a buyer that the property taxes in a particular neighborhood are among the lowest in the area. The buyer relies on the broker�s statement and makes an offer on a house in the neighborhood. Before closing, it is determined that the taxes are actually among the highest in the area. The buyer could seek to rescind the contract on the basis of:___________.
Answer:
misrepresentation
Explanation:
A broker is a person or firm who arranges the sale and purchase of a property between a buyer and a seller. He gets a commission if the deal is executed.
In the given question, a buyer is told by a broker that the property taxes in a particular neighborhood are the lowest in the area. Based on this information, makes an offer on a house in the neighborhood. Just before closing, he comes to know that the taxes are actually among the highest in the area.
So, The buyer could seek to rescind the contract based on misrepresentation
Large-scale integrated (LSI) circuit chips are made in one department of an electronics firm. These chips are incorporated into analog devices that are then encased in epoxy. The yield is not particularly good for LSI manufacture, so the AQL specified by that department is 20% while the LTPD acceptable by the assembly department is 52%. Assume the company is willing to accept a consumer's risk of 10 percent and a producer's risk of 5 percent.
A. Find the sample size.
B. How would you tell someone to do the test?
Answer:
A) sample size = 23.475 ≈ 23
B) How to tell someone to do the test is by taking a sampling process of a lot of the products because this will help to figure out defective units in the line of production and also ensure that the quality of the products are up to the same quality required
Explanation:
Data given
AQL = 20%, = 0.2
LTPD = 52% = 0.52
Assuming consumer risk acceptable by company = 10%
producer risk = 5%
A) First we calculate the ratio
= LTPD / AQL = 0.52 / 0.2 = 2.6
from the table of LTPD/AQL 2.6 is closest to 2.768
to calculate the sample size we apply the formula from the exhibit table
n ( AQL ) = 4.695
Therefore n ( sample size ) = 4.695 / 0.2 = 23.475
B) How to tell someone to do the test is by taking a sampling process of a lot of the products because this will help to figure out defective units in the line of production and also ensure that the quality of the products are up to the same quality required
Similarities between organized Sector and Unorganised sector
Answer:
The sector which is registered and follows government rules and regulations, having employees and employee unions is called as an organised sector. ... The sector that comprises of small-scale enterprises or units and is not registered with the governmen
Assume the following relationships for the Caulder Corp.: Sales/Total assets 1.4x Return on assets (ROA) 6% Return on equity (ROE) 9% Calculate Caulder's profit margin assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. 4.29 % Calculate Caulder's debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Round your answer to two decimal places. %
Answer:
(a) 4.2% (b) 0.52
Explanation:
Solution
The sale of total assets = 1.4
Return on assets and PAT/assets= 6%
ROE PAT/Equity =9%
(a)Profit margin/PAT/Sales is defined as follows:
profit margin = ROA/(Sales/Total assets)= 6%/1.4 = 0.42 = 4.2%
(b) ROE=profit margin X*Sales/Assets X (Assets/Equity)
= Assets/Equity=9%/ =(4.2%*1.4)
9% (0.058)
= 0.005292 = 0.52
Equity/assets 0.52
Debt assets=1- equity/assets
0.52
Crane Company acquired a patent on an oil extraction technique on January 1, 2020 for $6900000. It was expected to have a 10 year life and no residual value. Crane uses straight-line amortization for patents. On December 31, 2021, the future cash flows expected from the patent were $720000 per year for the next eight years. The present value of these cash flows, discounted at Crane’s market interest rate, is $3900000. At what amount should the patent be carried on the December 31, 2021 balance sheet?
Answer:
$5,520,000
Explanation:
As per the data given in the question,
Cost = $6,900,000
Less: Amortization for 2 years = $1,380,000 ($6,900,000×2÷10)
Book value of patent = $5,520,000 ($6,900,000 - $1,380,000)
Undiscounted sum of future cash flows = $5,760,000 ($720,000×8)
Since the amount of book value is less than the amount of undiscounted sum of future cash flow, Therefore Patent should be carried on the Book value, So, Patent should be carried on the December 31,2021 balance sheet at $5,520,000
The following items were selected from among the transactions completed by Sherwood Co. during the current year:
Mar.
1 Purchased merchandise on account from Kirkwood Co., $175,000, terms n/30.
31 Issued a 30-day, 6% note for $175,000 to Kirkwood Co., on account.
Apr.
30 Paid Kirkwood Co. the amount owed on the note of March 31.
Jun.
1 Borrowed $400,000 from Triple Creek Bank, issuing a 45-day, 5% note.
Jul.
1 Purchased tools by issuing a $45,000, 60-day note to Poulin Co., which discounted the note at the rate of 7%.
16 Paid Triple Creek Bank the interest due on the note of June 1 and renewed the loan by issuing a new 30-day, 6% note for $400,000. (Journalize both the debit and credit to the notes payable account.)
Aug.
15 Paid Triple Creek Bank the amount due on the note of July 16.
30 Paid Poulin Co. the amount due on the note of July 1.
Dec.
1 Purchased equipment from Greenwood Co. for $260,000, paying $40,000 cash and issuing a series of ten 9% notes for $22,000 each, coming due at 30-day intervals.
22 Settled a product liability lawsuit with a customer for $50,000, payable in January. Accrued the loss in a litigation claims payable account.
31 Paid the amount due to Greenwood Co. on the first note in the series issued on December 1.
Required:1. Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year.2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year (refer to the Chart of Accounts for exact wording of account titles):a. Product warranty cost, $80,000.b. Interest on the nine remaining notes owed to Greenwood Co. Assume a 360-day year.help needed please
Answer:
Sherwood Co.
1. Journal Entries:
March 1:
Debit Purchases $175,000
Credit Accounts Payable (Kirkwood Co.) $175,000
To record purchase of merchandise on account, terms, n/30.
March 31:
Debit Accounts Payable (Kirkwood Co.) $175,000
Credit Notes Payable (Kirkwood Co.) $175,000
To record issue of a 30-day, 6% note.
April 30:
Debit Notes Payable (Kirkwood Co.) $175,000
Debit Interest on Notes $875
Credit Cash Account $175,875
To record settlement of note and interest.
June 1:
Debit Cash Account $400,000
Credit Bank Note Payable (Triple Creek Bank) $400,000
To record 45-day, 5% bank note.
July 1:
Debit Equipment (Tools) $45,000
Credit Notes Payable (Poulin Co.) $45,000
To record purchase of tools and issue of 60-day note.
July 16:
Debit Interest on Bank Notes $2,500
Credit Cash Account $2,500
To record payment of interest due.
July 16:
Debit Bank Note Payable (Triple Creek Bank) $400,000
Credit Bank Note Payable (Triple Creek Bank) $400,000
To record loan renewal with issue of a new 30-day, 6% note.
August 15:
Debit Bank Note Payable (Triple Creek Bank) $400,000
Debit Interest on Notes $2,000
Credit Cash Account $402,000
To record payment on amount due.
Dec. 1:
Debit Equipment $260,000
Credit Cash Account $40,000
Credit Notes Payable (Greenwood Co.) $220,000
To record purchase of equipment and issue of a series of ten 9% notes for $22,000 each, due at 30-day intervals.
Dec. 22:
Debit Litigation Loss $50,000
Credit Litigation Claims Payable $50,000
To record a product liability lawsuit settled.
Dec. 31:
Debit Notes Payable $22,000
Debit Interest on Notes $165
Credit Cash Account $22,165
To settle note issued.
2) Adjusting Entries:
a) Product Warranty Cost
Debit Product Warranty $80,000
Credit Product Warranty Payable $80,000
To record accrued product warranty cost.
b) Interest on remaining notes to Greenwood Co.
No journal entries required.
Explanation:
a) The interests on remaining notes to Greenwood Co. are not yet due for payment as at December 31, and so do not require to be accrued.
b) Journal entries are used to record business transactions as they occur daily and individually. They show which accounts are to be debited and which are to be credited in the General Ledger. Journals are books of original entry. This means that they first capture each transaction in the books of accounts.
c) Adjusting entries are entries made to accrue revenue and expenses in order to comply with the accrual concept and matching principle of US GAAP.
d) Product warranty cost is the amount charged to expense only when warranty costs are incurred under a warranty program, or it may be set up as an allowance, where a standard amount is charged to expense each month.
The journal entries are referred to as the entries that help the firm to record the various economic transactions of it whether it is in cash or out cash. The transactions are recorded and then evaluated as per the book of entries. Those transactions are called entries because they are entered at a particular date and event.
The journal entries have been attached below.
To know more about the journal entries, refer to the link below:
https://brainly.com/question/16152590
You want to invest in a project in Canada. The project has an initial cost of C$828,000 and is expected to produce cash inflows of C$355,000 a year for three years. The project will be worthless after the first three years. The expected inflation rate in Canada is 4 percent while it is only 3 percent in the U.S. The applicable interest rate for the project in Canada is 12 percent. The current spot rate is C$1 = $.9126. What is the net present value of this project in Canadian dollars?
Answer:
C$24,650
Explanation:
initial cost C$828,000
net cash flows for years 1, 2 and 3 C$355,000
discount rate 12%
the net present value in C$ = C$355,000/1.12 + C$355,000/1.12² + C$355,000/1.12³ - C$828,000 = C$316,964 + C$283,004 + C$252,682 - C$828,000 = C$24,650
Since we are asked to determine the NPV in Canadian dollars, all we need to do is carry out the same calculations as if they were any other currency. We do not need to make any adjustments due to the exchange rate between US dollars and Canadian dollars.
Byrd Company produces one product, a putter called GO-Putter. Byrd uses a standard cost system and determines that it should take one hour of direct labor to produce one GO-Putter. The normal production capacity for this putter is 120,000 units per year. The total budgeted overhead at normal capacity is $1,080,000 comprised of $420,000 of variable costs and $660,000 of fixed costs. Byrd applies overhead on the basis of direct labor hours.
During the current year, Byrd produced 74,000 putters, worked 98,300 direct labor hours, and incurred variable overhead costs of $133,200 and fixed overhead costs of $612,000.
Required:
a. Compute the predetermined variable overhead rate and the predetermined fixed overhead rate.
b. Compute the applied overhead for Byrd for the year.
c. Compute the total overhead variance.
Answer:
Instructions are below.
Explanation:
Giving the following information:
Standard= 1 direct labor hour per unit
The total budgeted overhead at normal capacity is $1,080,000 comprised of $420,000 of variable costs and $660,000 of fixed costs.
During the current year, Byrd produced 74,000 putters, worked 98,300 direct labor hours, and incurred variable overhead costs of $133,200 and fixed overhead costs of $612,000.
First, we need to calculate the estimated overhead rate:
Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Estimated manufacturing overhead rate= (420,000 + 660,000)/120,000
Estimated manufacturing overhead rate= $9 per direct labor hour
Now, we can allocate overhead:
Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base
Allocated MOH= 9*98,300= $884,700
Finally, the total overhead variance:
Overhead variance= real overhead - allocated overhead
Overhead variance= 745,200 - 884,700
Overhead variance= 139,500 favorable
Portions of the financial statements for Peach Computer are provided below. PEACH COMPUTER Income Statement For the year ended December 31, 2018 Net sales $1,650,000 Expenses: Cost of goods sold $990,000 Operating expenses 500,000 Depreciation expense 44,000 Income tax expense 34,000 Total expenses 1,568,000 Net income $ 82,000 PEACH COMPUTER Selected Balance Sheet Data December 31 2018 2017 Increase (I) or Decrease (D) Cash $96,000 $82,000 $14,000 (I) Accounts receivable 46,600 52,000 5,400 (D) Inventory 69,000 52,000 17,000 (I) Prepaid rent 2,400 3,800 1,400 (D) Accounts payable 39,000 34,000 5,000 (I) Income tax payable 4,400 7,000 2,600 (D) Required: Prepare the operating activities section of the statement of cash flows for Peach Computer using the direct method. (List cash outflows as negative amounts.)
Answer:
operating activities section
Cash Receipts from Customers $1,644,600
Cash Paid to Suppliers and Employees ($1,500,600)
Cash Generated from Operations $164,000
Income taxes paid ($36,600)
Net Cash from Operating Activity $127,400
Explanation:
statement of cash flows for Peach Computer
operating activities section
Cash Receipts from Customers $1,644,600
Cash Paid to Suppliers and Employees ($1,500,600)
Cash Generated from Operations $164,000
Income taxes paid ($36,600)
Net Cash from Operating Activity $127,400
Cash Receipts from Customers Calculation :
Net sales $1,650,000
Less Increase In Account Receivable ( $ 5,400)
Cash Receipts from Customers $1,644,600
Cash Paid to Suppliers and Employees Calculation :
Cost of goods sold $990,000
Add Operating expenses $500,000
Increase in inventory $17,000
Decrease in Prepaid rent ($1,400)
Increase in Accounts payable ($5,000)
Cash Paid to Suppliers and Employees $1,500,600
Income tax expense Paid Calculation :
Income tax expense $34,000
Add Decrease in Income tax payable $2,600
Income tax expense Paid $36,600
or False: The following statement accurately describes how firms make decisions related to issuing new common stock. Taking flotation costs into account will reduce the cost of new common stock. True: Taking flotation costs into account will reduce the cost of new common stock, because you will multiply the cost of new common stock by 1 minus the flotation cost—similar to how the after-tax cost of debt is calculated. False: Flotation costs are additional costs associated with raising new common stock.
Answer: False: Flotation costs are additional costs associated with raising new common stock.
Explanation:
Floatation costs are indeed an expense associated with issuing new stock which consist of expenses such as legal and underwriting fees.
They increase the cost of common stock because they are taken from common stock. They cannot be compared to debt because debt is an expense so tax reducing it reduces our cost but when the floatation costs are removed from stock, we get less.
The following information is for employee Ella Dodd for the week ended March 15.
Total hours worked: 48
Rate: $15 per hour, with double time for all hours in excess of 40
Federal income tax withheld: $200
United Fund deduction: $50
Cumulative earnings prior to current week: $6,400
Tax rates:
Social security: 6% with no maximum earnings.
Medicare tax: 1.5% on all earnings.
State unemployment: 3.4% with no maximum earnings; on employer.
Federal unemployment: 0.8% with no maximum earnings; on employer.
Required:
a) Determine the (1) total earnings, (2) total deductions, and (3) cash paid.
b) Determine each of the employer's payroll taxes related to the earnings of Ella Dodd for the week ended March 15.
Answer:
a. The total earnings is $840
The total deductions is $313
The cash paid is $527
b. The Social security and medicare taxes is $63
The State unemployment tax is $28.56
The Federal unemployment tax is $6.72
Explanation:
a. To calculate the (1) total earnings, (2) total deductions, and (3) cash paid we would have to calculate the following formula:
1. Total earnings=(15*40)+((48-40)*15*2)
Total earnings=$840
2. Total deductions=(Federal Tax+United fund deduction+Social security tax+Medicare tax)
Total deductions=$200+$50+($840*6%)+($840*1.5%)
Total deductions=$313
3. Cash paid=Total earnings-Total deductions
Cash paid=$840-$313
Cash paid=$527
b. The calculation of each of the employer's payroll taxes related to the earnings of Ella Dodd for the week ended March 15 would be the following:
Social security and medicare taxes=$840*(6%+1.5%)
Social security and medicare taxes=$63
State unemployment tax=$840*3.4%
State unemployment tax=$28.56
Federal unemployment tax=$840*0.8%
Federal unemployment tax=$6.72
A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for 10,000 and paid 750 for the freight in. The company sold the whole lot to a supermarket chain for 14,000 on account. The company uses the specific identification method of inventory costing. Which of the following entries correctly records the cost of goods sold?
A.
cost of goods sold 10,750
merchandise inventory 10,750
B.
merchandise inventory 10,750
cost of goods sold 10,750
C.
cost of goods sold 10,000
sales revenue 10,000
D.
cost of goods sold 10,000
merchandise inventory 10,000
Answer:
The correct option is A:
cost of goods sold 10,750
merchandise inventory 10,750
Explanation:
When goods are bought for resale,the total cost of the goods bought is usually the invoice price paid as well as the cost of bringing in the goods i.e freight,hence the cost of the goods sold here is the invoice price of $10,000 plus the freight of $750,giving total cost of $10,750
When the goods are sold,merchandise inventory would be credited with $10,750 while cost of goods sold is debited with same amount.
The correct option is first one with cost of goods sold debited with $10.750 and merchandise inventory credited for $10,750
ReVitalAde produced 13,000 cases of powdered drink mix and sold 12,000 cases in April 2018. The sales price was $ 29, variable costs were $ 12 per case ($ 9 manufacturing and $ 3 selling and administrative), and total fixed costs were $ 100,000 ($ 91,000 manufacturing overhead and $ 9,000 selling and administrative). The company had no beginning Finished Goods Inventory.
Required:
1. Prepare the April income statement using variable costing.2. Determine the product cost per unit.
Answer:
1. Profit = $204,000.
2. Product cost per unit = $12 per unit.
Explanation:
1. Prepare the April income statement using variable costing.
Details $
Revenue ($29 * 12,000) 348,000
Total variable cost of unit sold ($12 * 12,000) 144,000
Profit 204,000
2. Determine the product cost per unit.
Total variable cost of production = $12 * 13,000 = $156,000
Total fixed cost of production = $100,000
Total cost of production = $156,000 + $100,000 = $256,000
Product cost per unit = $256,000 / 13,000 = $12 per unit.
The art appreciation society operates a museum for the benefit and enjoyment of the community. During hours when the museum is open to the public, two clerks who are positioned at the entrance collect a $5.00 admission fee from each nonmember patron. Members of the Art Appreciation Society are permitted to enter free of charge upon presentation of their membership cards. At the end of the day, one of the clerks delivers the proceeds to the treasurer. The treasurer counts the cash in the presence of the clerk and places it in a safe. Each Friday afternoon the treasurer and one of the clerks deliver all cash held in the safe to the bank, and receive an authenticated deposit slip which provides the basis for the weekly entry in the cash receipts journal.The Board of Directors of the Art Appreciation Society has identified a need to improve their control procedures for cash admission fees. The board has determined that the cost of installing turnstiles, sales booths, or otherwise altering the physical layout of the museum will greatly exceed any benefits which may be derived. However, the board has agreed that the sale of admission tickets must be an integral part of its improvement efforts.Required: Identify three internal control weaknesses and suggest a solution for each. Be as specific as possible.
Answer:
1)
Deficiency:
There is no method for determining the exact number of members of the Art Appreciation Society that actually enter the museum every day. The person that allows them to enter is the same person that charges the entrance fee.
Recommendation:
Since there are two clerks, one should deal with paying patrons and the other one should be in charge of allowing non paying members of the Art Appreciation Society to enter the museum.
2)
Deficiency:
There is no method that controls and documents the number of paying visitors.
Recommendation:
The simplest and cheapest way to solve this issue is to issue prenumbered tickets to paying visitors.
3)
Deficiency:
There is a chance that the same clerk delivers the cash to the treasurer and goes to the bank to make the deposit. if this happens, there would be no control over the daily proceeds and the money deposited.
Recommendation:
One of the clerks should be in charge of delivering the daily proceeds to the treasurer, and the other one should be in charge of going to the bank with the treasurer. Probably the best alternative would be that the clerks change tasks every week, e.g. one week clerk 1 delivers the cash to the treasurer, next week clerk 2 should do it.
Weaknesses in the collecting and recommendation systems.
Weaknesses:One problem is that the gathered amount should not be deposited by the Treasurer and Clerk since they are collecting and retaining the money for a long time before depositing it.
Recommendation:A different individual should be selected to deposit this amount on a regular basis, as involving more people reduces the chance of fraud and ensures a flawless internal control system.
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The production head at the Omnitone Paint Company would frequently stay back after office hours and experiment with new color combinations even though this was part of the new product development team's job. As a result of these experiments, he came up with two new interior paint colors, foggy morning and mint julep. The new colors proved popular among test groups, and quickly became some of Omnitone's best-selling products. Which of the following strategies does this scenario best illustrate?
A) intended strategy
B) emergent strategy
C) unrealized strategy
D) tactical strategy
Answer: Emergent Strategy
Explanation:
An emergent strategy is an approach to take action not stated or planned in the initial stage but emerges and develops with time in an organization during an ongoing project as the organisation changes and advances.
This realized strategy helps to identify unforeseen circumstances that arises during implementation of task and therefore the organisation will have to incorporate the result from new strategy which will be beneficial in the long run especially for future purposes.
Here in Omnitone organisation, the coming up with new colors during experimenting with colors which became popular showed implementation of emergent strategy.
Suppose the Fed raises the required reserve ratio, a move that is normally thought to reduce the money supply. However, banks find themselves with a reserve deficiency after the required reserve ratio is increased and are likely to react by requesting a loan from the Fed.
Does this action prevent the money supply from contracting as predicted? Explain your answer.
Answer:
It hinders or prevents the money supply from contracting as much and as fast as it would have contracted if the banks had not gone to the Fed for loans. moreover, it is only a short-run phenomenon. Once the banks repay the Fed loans (probably within the next two to four weeks), reserves will leave the banking system, and the money supply will decline as predicted. The loans the Fed makes to banks create a lag between the increase in the required reserve ratio and the full contractionary effect on bank reserves and the money supply.
Explanation:
Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow: Total Hiking Fashion Sales revenue $480,000 $340,000 $140,000 Variable expenses 355,000 235,000 120,000 Contribution margin 125,000 105,000 20,000 Fixed expenses 76,000 38,000 38,000 Operating income (loss) $49,000 $67,000 $(18,000) If $25,000 of fixed costs will be eliminated by discontinuing the Fashion line, how will operating income be affected for the company as a whole
Answer:
The operating income will increase by $ 25000.The new net profit would be $ 92000.
Explanation:
Boots Plus
Income Statement
Total Hiking Fashion
Sales revenue $480,000 $340,000 $140,000
Variable expenses 355,000 235,000 120,000
Contribution margin 125,000 105,000 20,000
Fixed expenses 76,000 38,000 38,000
Operating income (loss) $49,000 $67,000 $(18,000)
If $25,000 of fixed costs will be eliminated by discontinuing the Fashion line, the new income statement will be as follows
Boots Plus
Income Statement
Hiking
Sales revenue $340,000
Variable expenses 235,000
Contribution margin 105,000
Fixed expenses 13000= 38,000- $ 25000
Operating income (loss) $92,000
The operating income will increase by $ 25000.The new net profit would be $ 92000.
Saddle Inc. has two types of handbags: standard and custom. The controller has decided to use a plantwide overhead rate based on direct labor costs. The president has heard of activity-based costing and wants to see how the results would differ if this system were used. Two activity cost pools were developed: machining and machine setup. Presented below is information related to the company’s operations. Standard Custom Direct labor costs $60,000 $103,000 Machine hours 1,400 1,290 Setup hours 96 400 Total estimated overhead costs are $300,000. Overhead cost allocated to the machining activity cost pool is $195,000, and $105,000 is allocated to the machine setup activity cost pool.Compute the overhead rate using the traditional (plantwide) approach.
Answer:
Estimated manufacturing overhead rate= $1.84 per direct labor dollar
Explanation:
Giving the following information:
Total Direct labor costs= 60,000 + 103,000= $163,000
Total estimated overhead costs are $300,000.
To calculate the estimated manufacturing overhead rate we need to use the following formula:
Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Estimated manufacturing overhead rate= 300,000/163,000
Estimated manufacturing overhead rate= $1.84 per direct labor dollar
Grayson Bank agrees to lend the Trust Company $100,000 on January 1.
Trust Company signs a $100,000, 8%, 9-month note.
The entry made by Trust Company on January 1 to record the proceeds and issuance of the note is
a. Notes Payable 100,000 Interest Payable 6,000 Cash 100,000 Interest Expense 6,000
b. Interest Expense 8,000 Cash 92,000 Notes Payable 100,000
c. Cash 100,000 Notes Payable 100,000
d. Cash 108,000 Interest Expense 8,000 Notes Payable 108,000
Answer:
The entry made by Trust Company on January 1 to record the proceeds and issuance of the note is
Debit Credit
Cash $100,000
Notes Payable $100,000
The right answer is c
Explanation:
According to the given data the interest will not be adjusted at the time of loan proceed and issuance of note
Therefore, The entry made by Trust Company on January 1 to record the proceeds and issuance of the note is the following:
Debit Credit
Cash $100,000
Notes Payable $100,000
To record the borrowing
The balance sheet for the newly formed ACME Bank is shown below.ACME Bank Balance Sheet 1Assets Liabilities and net worthReserves $151,000 Checkable deposits $140,000Property $275,000 Stock shares $286,000Required:
a. Toshi, the owner of Toshi's Produce, negotiates with the bank to obtain a $28,000 loan to buy a new delivery truck. The amount of the loan is added to the available balance of Toshi's checking account. Fill in the new values that will appear in the balance sheet immediately after the loan is finalized.ACME Bank Balance Sheet 2Assets Liabilities and net worthReserves ???? Checkable deposits ????Loans ???? Stock shares ????Property ????
Answer:
Explanation:
As the loan has not been used yet, it will stay in the Loan account of the bank. The balances on the books for ACME will therefore be,
Reserves - $151,000.
It does not change as loan has not been used yet. If Toshi was to use loan then this figure will reduce because withdrawals are given from the Bank reserves.
Checkable Deposits will increase by the loan amount as that was where Toshi was credited to.
= 140,000 + 28,000
= $168,000
Loans - $28,000
The bank will now have a loan balance of $28,000 on its debit side to reflect the loan it just gave out.
Stock Shares - $286,000.
Not affected by the transaction.
Property - $275,000
Not affected by the transaction.
Immediately after Toshi's loan is finalized, the Balance Sheet of ACME Bank will look like this:
ACME Bank
Balance Sheet
Assets Liabilities and Net Worth
Reserves $179,000 Checkable deposits $168,000
Property $275,000 Stock shares $286,000
Total assets $454,000 Total Liabilities & net worth $454,000
Data and Calculations:
ACME Bank Balance Sheet
Assets Liabilities and Net Worth
Reserves $151,000 Checkable deposits $140,000
Property $275,000 Stock shares $286,000
Total assets $426,000 Total Liabilities & net worth $426,000
a. Reserves $28,000 Checkable deposits $28,000
Thus, ACME Bank's Reserves will increase by $28,000, and its Checkable deposits will also increase by $28,000.
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Innova uses 1,000 units of the component IMC2 every month to manufacture one of its products. The unit costs incurred to manufacture the component are as follows. Direct materials $61.48 Direct labor 37.19 Overhead 126.50 Total $225.17 Overhead costs include variable material handling costs of $7.16, which are applied to products on the basis of direct material costs. The remainder of the overhead costs are applied on the basis of direct labor dollars and consist of 60% variable costs and 40% fixed costs. A vendor has offered to supply the IMC2 component at a price of $230 per unit. (a) Prepare the incremental analysis for the decision to make or buy IMC2. Make IMC2 (per unit) Buy IMC2 (per unit) Net Income Increase (Decrease) Direct material $ $ $ Direct labor Material handling Variable overhead Purchase price Total unit cost $ $ $ Should Innova purchase the component from the outside vendor if Innova’s capacity remains idle?
Answer:
Innova
a) Make or Buy IMC2 Incremental Analysis:
Make IMCs (per unit)
Direct material $61.48
Direct labor 37.19
Material handling 7.16
Variable overhead 71.60
Total unit cost 177.43
Buy IMC2 (per unit)
Purchase price $230
Net Income will decrease by ($52.57) if IMC2 is bought.
b) Innova should not purchase the component. It costs more to buy IMC2 than to make it based on incremental analysis.
Explanation:
a) Incremental Analysis is a decision-making technique used in business to determine the true cost difference between alternatives. It is also called the relevant cost approach, marginal analysis, or differential analysis. Using incremental analysis, sunk cost or past cost is disregarded as irrelevant. The fixed cost element equalling $47.74 per unit is a sunk cost that is not relevant for incremental analysis.
b) In a make or buy decision, the company considers if internalization of production will be of greater economic benefits than outsourcing.
c) Variable overhead is calculated as ($126.50 - $7.16) x 60% = $71.60
Handy Leather, Inc., produces three sizes of sports gloves: small, medium, and large. A glove pattern is first stenciled onto leather in the Pattern Department. The stenciled patterns are then sent to the Cut and Sew Department, where the glove is cut and sewed together. Handy Leather uses the multiple production department factory overhead rate method of allocating factory overhead costs. Its factory overhead costs were budgeted as follows:Pattern Department overhead $135,000 Cut and Sew Department overhead 227,800 Total $362,800 The direct labor estimated for each production department was as follows:Pattern Department 2,700 direct labor hoursCut and Sew Department 3,400 Total 6,100 direct labor hoursDirect labor hours are used to allocate the production department overhead to the products. The direct labor hours per unit for each product for each production department were obtained from the engineering records as follows:Production Departments Small Glove Medium Glove Large GlovePattern Department 0.04 0.05 0.06 Cut and Sew Department 0.08 0.10 0.12 Direct labor hours per unit 0.12 0.15 0.18 Required:a. Determine the two production department factory overhead rates.b. Use the two production department factory overhead rates to determine the factory overhead per unit for each product.
Answer:
a. Determine the two production department factory overhead rates.
Pattern department = $50 per hour
Cut and sew department = $67 per hour
b. Use the two production department factory overhead rates to determine the factory overhead per unit for each product.
Production Small Medium Large
Departments Glove Glove Glove
Pattern Department $2.00 $2.50 $3.00
Cut and Sew Department $5.36 $6.70 $8.04
Explanation:
small, medium, large
Pattern Department overhead $135,000
Cut and Sew Department overhead $227,800
Total $362,800
Pattern Department 2,700 direct labor hours
Cut and Sew Department 3,400
Total 6,100 direct labor hours
Overhead rate per hour:
Pattern department = $135,000 / 2,700 hours = $50 per hour
Cut and sew department = $227,800 / 3,400 hours = $67 per hour
Production Small Medium Large
Departments Glove Glove Glove
Pattern Department 0.04 0.05 0.06
Per unit ($50) $2.00 $2.50 $3.00
Cut and Sew Department 0.08 0.10 0.12
Per unit ($67) $5.36 $6.70 $8.04
Listed below are selected transactions for the Gotham City Garbage Service, which is accounted for in an Enterprise Fund. All amounts are in thousands of dollars.
Transactions:
1. Services of $8,250 were provided and billed to outside customers.
2. Services of $1,500 were provided and billed to the General Fund.
3. $1,500 was collected from other funds, and $7,500 was collected on account.
4. $100 of accounts receivable were written off as uncollectible.
5. Estimated bad debts for the year were $220.
Requirement:
1. Prepare the journal entries required in the Enterprise Fund. If no entry is required, state "No entry required" and explain why.
2. Compute the amount of sales revenues that should be reported for the Enterprise Fund.
Answer:
journal entries
1.
Trade Receivable - Outside Customers $8,250 (debit)
Revenue $8,250 (credit)
2.
Trade Receivable - General Fund $1,500 (debit)
Revenue $1,500 (credit)
3.
Cash $9,000 (debit)
Trade Receivables $7,500 (credit)
Revenue $1,500 (credit)
4.
Bad Debts Written off $100 (debit)
Trade Receivables $100 (credit)
5.
Doubtful Debts $220 (debit)
Provision for Doubtful Debts $220 (credit)
Amount of sales revenues :
Revenue = $8,250 + $1,500 + $1,500
= $ 11,250
Explanation:
For amount of sales revenues ADD Revenue recorded in Journals 1 to 3
Which of the following statements is (are) true regarding product costing?
(A) Individual product costs are relevant for managerial decision-making but irrelevant for preparing the financial statements.
(B) A common decision facing managers is determining the price at which to sell their products or provide their services.
Answer:
Option B is the correct answer.
Explanation:
Option B is correct because when a firm produces or manufactures the product then various types of costs are associated with that product like variable costs, fixed costs, etc. Profit is the main motive of every firm so the manager decides the price of the commodity in such a way that it can compete in the market and generate revenue for the firm. Therefore, it is the responsibility of the manager to look after the pricing strategy at which the product has to sell.
Manufacturing cost data for Orlando Company, which uses a job order cost system, are presented below. Indicate the missing amount for each letter. Assume that in all cases manufacturing overhead is applied on the basis of direct labor cost and the rate is the same. (Round overhead rate to 2 decimal places, e.g. 15.25 and final answers to 0 decimal places, e.g. 5,275.) Case A Case B Direct materials used $enter a dollar amount (a) $93,400 Direct labor 56,000 146,100 Manufacturing overhead applied 44,800 enter a dollar amount (d) Total manufacturing costs 150,150 enter a dollar amount (e) Work in process 1/1/20 enter a dollar amount (b) 16,800 Total cost of work in process 205,900 enter a dollar amount (f) Work in process 12/31/20 enter a dollar amount (c) 15,400 Cost of goods manufactured 194,300 enter a dollar amount (g)
Answer and Explanation:
As per the given question the solution of missing amount for each letter is provided below:-
Case A Case B
Direct material used a $49,350 $93,400
Direct Labor $56,000 $146,100
Manufacturing overhead
applied $44,800 d $116,880
Total manufacturing
cost $150,150 e $356,380
Work in process 1/1/20 b $55,750 $16,800
Total cost of work in
process $205,900 f $373,180
Work in process
12/31/20 c $11,600 $15,400
Cost of goods
manufactured $194,300 g $357,780
Working Note
a. Direct materials used = Total manufacturing costs - Manufacturing overhead applied - Direct labor
= $150,150 - ($56,000 + $44,800)
= $150,150 - $100,800
= $49,350
b. Works in process 1/1/20 = Total cost of works in process - Total manufacturing costs
= $205,900 - $150,150
= $55,750
c. Works in process 12/31/20 = Total cost of works in process - Cost of goods manufactured
= $205,900 - $194,300
= $11,600
d. Manufacturing overhead applied = $44,800 ÷ $56,000
= 80%
For case B the manufacturing overhead applied = 80% × $146,100
= $116,880
e. Total manufacturing costs = Direct materials used + Direct Labor + Manufacturing overhead applied
= $93,400 + $146,100 + $116,880
= $356,380
f. Total cost of work in process = Total manufacturing costs + Works in process 1/1/20
= $356,380 + $16,800
= $373,180
g. Cost of goods manufactured = Total cost of work in process - Works in process 31/12/20
= $373,180 - $15,400
= $357,780
Therefore to reach the missing amounts we simply use the working notes.
The value of the direct material used is $49,350.
Based on the information given, the values for each question will be calculated below:
The direct materials used will be:
= Total manufacturing costs - Manufacturing overhead applied - Direct labor
= $150,150 - ($56,000 + $44,800)
= $150,150 - $100,800
= $49,350
The works in process 1/1/20 will be:
= Total cost of works in process - Total manufacturing costs
= $205,900 - $150,150
= $55,750
The value of the works in process 12/31/20 will be:
= Total cost of works in process - Cost of goods manufactured
= $205,900 - $194,300 = $11,600
The value of the manufacturing overhead applied will be:
= $44,800 / $56,000 = 80%
For case B the manufacturing overhead applied will be calculated as:
= 80% × $146,100
= 0.8 × $146100
= $116,880
The total manufacturing costs will be:
= Direct materials used + Direct Labor + Manufacturing overhead applied
= $93,400 + $146,100 + $116,880 = $356,380
The total cost of work in process will be:
= Total manufacturing costs + Works in process 1/1/20
= $356,380 + $16,800 = $373,180
The cost of goods manufactured will be:
= Total cost of work in process - Works in process 31/12/20
= $373,180 - $15,400 = $357,780
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Friends International is an NGO that fosters greater cultural awareness and understanding by arranging for people of different backgrounds to spend time in other countries and cultures. On January 1, 2014 they purchased $80,000 of open airline tickets in advance that can be used for a variety of destinations. Using the accrual method, build the entry to record the use of $40,000 of these tickets on March 15, 2014 for multiple passengers on a flight from New York to Kigali, Rwanda.
Answer:
Dr Travel Expenses 40,000
Cr Prepaid Expenses 40,000
Explanation:
Friends International
Dr Travel Expenses 40,000
Cr Prepaid Expenses 40,000
Travel Expense for $40,000 was been DEBITED in order to recognize the expense associated with the use of the tickets and cPrepaid Expense for $40,000 was been CREDITED because the company no longer has the right to receive benefits from the prepaid tickets.