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# Accounting problems

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Chapter 2
2-14 Expanded Accounting Equation
For the following four cases, use the expanded accounting equation to compute the missing quantity

Assets liabilities Capital stock Retained earnings
Case A \$20,000 \$8,000 A \$3,500
Case B 16,000 B \$5,000 2,000
Case C C 11,000 14,000 32,000
Case D 46,000 30,000 20,000 D

Exercise 2-6
Balance Sheet preparation
From the following data, prepare a classified balance sheet for Simon Company at December 31, 2006

Accounts payable.................................................\$62,500
Accounts receivable............................................... 123,000
Buildings............................................................418,000
Owner's equity 01/01/06............................................210,000
Cash...................................................................179,750
Distribution to owners during 2006................................21,750
Supplies................................................................3,750
Land.................................................................... 130,000
Mortgage payable......................................................479,500
Net income for 2006.................................................. 124,750
Owner equity 12/31/06................................................. ...?

2-8 Income Statement preparation
The following selected information is taken from the records of Beckstrom Corporation

Accounts payable.................................................\$35,000
Accounts receivable................................................65,000
Cash.....................................................................19,500
Supplies expense......................................................46,000
Rent expense............................................................10,000
Utilities expense.........................................................3,000
Income taxes (30% of income before taxes)............................?
Misc. expense..............................................................4,400
Owners equity..............................................................140,000
Salaries expense............................................................61,000
Fees (revenue)........................................................ 384,000

Prepare an income statement for the year ended December 31, 2006. (Assume that 7,500 shares of stock are outstanding)

2-9 Cash flow computation
From the following selected data compute

1. Net cash flow provided (used) by operating activities
2. Net cash flow provided (used) by investing activities
3. Net cash flow provided (used) by financing activities
4. Net increase (decrease) in cash during the year
5. The cash balance at the end of the year

Cash receipts from:
Customers.....................\$270,000
Investment by owners.........54,000
Sale of building................90,000
Proceeds from bank loan......60,000

Cash payments for:
Wages........................................\$82,000
Utilities....................................3,000
Rent......................................36,000
Taxes....................................67,000
Dividends...............................20,000
Repayment of principal on loan......40,000
Purchase of land.........................106,000
Cash balance at beginning of year ...............\$386,000

2-11 Retained earning computations

During 2006, Edgemont Corporation had revenues of \$230,000 and expenses, including income taxes of \$190,000. On December 31, 2005, Edgemont had assets of \$ 350,000, liabilities of \$80,000 and capital stock \$210,000. Edgemont paid a cash dividend of \$25,000 in 2006. No additional stock was issued compute the retained earnings for December 31, 2005.

2-14 Cash flow classifications

For each of the following items indicate whether it would be classified and reported the operating activities (OA), investing activities (IA), or financing activities (FA) section of statement cash flows:

a Cash receipts from selling merchandise
b Cash payments for wages and salaries
c Cash proceeds from sale of stock
d Cash purchase of equipment
e Cash dividends paid
f Cash received from bank loan
g Cash payments for inventory
h Cash receipts from services rendered
i Cash payments for taxes
j Cash proceeds from sale of property no longer needed as expansion site

#### Solution Preview

Chapter 2
2-14 Expanded Accounting Equation
For the following four cases, use the expanded accounting equation to compute the missing quantity

Assets liabilities Capital stock Retained earnings

Case A \$20,000 \$8,000 A \$3,500

Case B 16,000 B \$5,000 2,000

Case C C 11,000 14,000 32,000

Case D 46,000 30,000 20,000 D

Assets = Liabilities + Equity + Retained Earnings

Case A 20,000 = 8,000 + A + 3,500
A = 8,500

Case B 16,000 = B + 5,000 + 2,000
B = 9,000

Case C C = 11,000 + 14,000 + 32,000
C = 57,000

Case D 46,000 = 30,000 + 20,000 + D
D = -4,000

Exercise 2-6
Balance Sheet preparation
From the following data, prepare a classified balance sheet for Simon Company at December 31, 2006

Accounts payable.................................................\$62,500
Accounts receivable............................................... 123,000
Buildings............................................................418,000
Owner's equity 01/01/06............................................210,000
Cash...................................................................179,750
Distribution to owners during 2006................................21,750
Supplies................................................................3,750
Land.................................................................... 130,000
Mortgage payable......................................................479,500
Net income for 2006.................................................. 124,750
Owner equity 12/31/06................................................. ...?
Simon Company
Statement of Retained Earnings
For the year ended December 31, 2006

Owners' equity, 1/1/06 210,000
Add: Net income for 2006 124,750
Less: Distributions to owners during 2006 21,750
Owners' ...

#### Solution Summary

This solution is to answer how to use the expanded accounting equation to compute the missing quantity, prepare a classified balance sheet for Simon Company, Income Statement preparation of Beckstrom Corporation, Cash flow computation, retained earning computations of Edgemont Corporation, and Cash flow classifications.

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(See attached file for full problem description)

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EXERCISE 2-10 Varying Predetermined Overhead Rates (LO3, LO5)
Javadi Company makes a composting bin that is subject to wide seasonal variations in demand. Unit Product costs are computed on a quarterly basis by dividing each quarter's manufacturing costs ( materials, labor, and overhead) by the quarter's production in units. The company estimated costs, by quarter, for the coming year are given below:

__________________Quarter_____________________
First Second Third Fourth
Direct Materials \$240,000 \$120,000 \$60,000 \$180,000
Direct labor 96,000 48,000 24,000 72,000
Manufacturing costs 228,000 204,000 192,000 216,000
Total manufacturing costs \$564,000 \$372,000 \$276,000 \$468,000

Number of units to be produced 80,000 40,000 20,000 60,000
Estimated unit product cost \$7.05 \$9.30 \$13.80 \$7.80

Management finds the variation in the unit product costs to be confusing and difficult to work with. It has been suggested that the problem lies with manufacturing overhead, since it is the largest element of cost. Accordingly, you have been asked to find more appropriate way of assigning manufacturing overhead cost to units of product. After some analysis, you have determined that the company's overhead costs are mostly fixed and therefore show little sensitivity to changes in the level of production.

Required:
1. The company uses a job - order costing system. How would you recommend that manufacturing overhead cost be assigned to production? Be specific, and show computations.
2. Recompute the company's unit costs in accordance with your recommendations in (1) above.

Chapter 3

EXERCISE 3-9 Assigning Overhead to Products in ABC (LO3)
Refer to the data in Exercise 3-8 for Sultan Company. The activities during the year were distributed across the company's four products as follows:

Actual Product Product Product Product
Activity Cost Pool Activity A B C D
Labor related 25,000 DLHs 6,000 10,000 4,000 5,000
Purchase orders 200 orders 60 30 20 90
Parts management 110 parts type 30 25 40 15
Board etching 1,800 boards 500 900 400 0
General Factory 22,000 MHs 3,000 8,000 5,000 6,000

Chapter 4
Required:
Compute the amount of overhead cost applied to each product during the year.

PROBLEM 4-17 Comprehensive Process Costing Problem - Weighted -Average
Method (LO1, LO2, LO3, LO4, LO5)

Techno Co. produces a special kind of tool that is widely used by construction. The tool is produced in two processes: bending and drilling. Raw materials are introduced at various points in the Bending Department; labor and overhead costs are incurred evenly through the bending operation. The bent output is then transferred to the Drilling Department.
The following incomplete Work in Process account has been provided for the Bending Department for May:

Work in Process - Bending Department
May 1 inventory (12,000 units; materials 80%
complete) 45,369
May costs dded:
Raw materials (270,000 units) 394,210
Direct labor 638,144

? Completed and transferred
To drilling ( ? Units)
May 31 inventory (9,000; materials
90% complete; labor

The May 1 work in process inventory in the Bending Department consists of the following cost elements: raw materials, \$13,385; direct labor, \$18,880; and overhead, \$13,104. Costs incurred during May in the Drilling Department were: materials used, \$100,800; direct labor, \$250,600; and overhead cost applied to production, \$189,000.
The company accounts for units and costs using the weighted-average method.

Required:
1. Prepare journal entries to record the costs incurred in both the Bending Department and the Drilling Department during May. Key your entries to the items (a) through (g) below.
a. Raw materials were issued for use in production.
b. Direct labor costs were incurred.
c. Manufacturing overhead costs for the entire factory were incurred, \$685,000. (Credit Accounts Payable.)
d. Manufacturing overhead cost was applied to production using a predetermined overhead rate.
e. Units that were complete as to processing in the Bending Department were transferred to eh Drilling Department, \$1,536,990.
f. Units that were complete as to processing in the Drilling Department were transferred to Finished Good, \$1,650,000.
g. Completed units were sold on account, \$2,700,000. the Cost of Goods Sold was \$1,600,000.
2. Post the journal entries from (1) above T-accounts. The following account balances existed at the beginning of May. (the beginning balance in the Bending Department's Work in Process account is given above.)

Raw Materials \$500,000
Work in Process-Drilling Department \$10,000
Finished Goods \$110,000
After posting the entries to the T-accounts, find the ending balance in the inventory accounts and the manufacturing overhead accounts.

3. Prepare a production report for the Bending Department for May.

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