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Various Accounting Problems

See attached file for full problem description.

1. Today, Leila Lee, the manager of Technology Abounds, needs to make a decision on whether or not to outsource the Widget department. She needs to analyze the income statement and balance sheets for Technology Abounds' department to discover whether or not the Widget Department is performing as well as the other departments. Unfortunately, an ink accident caused the company's sole printer to malfunction. The printer department was able to get the following information from the printer before it lost all power (the computers were all being cleaned,) so Leila assigned Dr. Who, the company's accountant, the task of recreating the books before the end of the day. What were the numbers that Dr. Who recreated for Leila Lee? Here is the information obtained before the unfortunate accident:

Technology
Department Television
Department Printer
Department Widget
Department
Revenue $110,000 $230,000 ? ?
Expenses ? ? $70,000 $70,000
Net Income $40,000 ? $55,000 ?
Retained Earnings, Jan 1 ? $377,000 $180,000 $5,000
Dividends $60,000 $77,000 ? $1,000
Retained Earnings, Dec 31 $145,000 $400,000 ? ?
Current Assets ? $65,000 $30,000 ?
Non-current Assets $420,000 ? $490,000 $310,000
Total Assets $510,000 ? ? $400,000
Current Liabilities ? $20,000 ? $20,000
Non-current Liabilities $270,000 ? $270,000 ?
Total Liabilities ? $150,000 ? ?
Owner's Equity ? $425,000 $20,000 $180,000
Total equity $180,000 ? $230,000 $190,000

You will find the following relationships helpful:

Retained Earnings, Jan 1 + Net Income - Dividends = Retained Earnings, Dec 31
Total Assets = Current Assets + Non-current Assets
Total Liabilities = Current Liabilities + Non-current Liabilities
Total Equity = Retained Earnings (end of year) + Owner's Equity
Helpful Hint: This problem is a chart that contains accounts from both the balance sheet and the income statement. It might be helpful to break the chart into these two statements and look for relationships. Your grade for this problem depends on your ability to demonstrate your understanding of the material. Therefore, you must, in addition to providing the correct answers, provide the equations that you used for each blank, the order in which you found the answers, and a brief explanation of your work. Remember you are trying to demonstrate your understanding of this material.

2. Mallory is the sole proprietor of "Mallory's Specialty Foods." Her two main revenue streams are to cater food for special occasions, and to sell hard-to-find specialty ethnic foods. The following transactions occurred during the month of December 2006:

a. Paid $1,300 for rent in December.
b. Paid $1,000 advertising costs for the month of December.
c. Catered a retirement party for a local business. The customer agreed to pay the bill of $2,200 within 30 days.
d. Paid $6,400 in salaries for the month of December.
e. Recorded credit card sales of $18,000 less a 2% service fee. Mallory's Specialty Foods allows customers to use Visa, Mastercard, and Discover.
f. Catered a birthday party for which the customer had paid $1,000 cash in November.
g. Paid miscellaneous expenses of $300 for the month.
h. Cash sales of $12,500 for the month were recorded.
i. Recognized that one month's liability insurance expired. The insurance was prepaid in January and cost $36,120 for the year.
j. A physical count revealed that $14,000 of inventory was sold during the month.
k. At the end of December, Mallory owes the employees $1,600 which is one week's salary.
l. Recognized one month's depreciation on the store equipment. Mallory uses a 10-year straight-line depreciation to record depreciation each month. The store equipment originally cost $120,000 when she opened the store on January 1, 2000.
m. Received, but did not pay the December utility bill of $1,500.
Required
a. Identify the accounts that are affected by each of the transactions. Identify whether the transaction increases or decreases each the accounts you have identified.
b. Create a balance sheet for Mallory's Specialty Foods for the month ended December 31, 2006. Here is the balance sheet for Mallory's Specialty Foods for the month ended November 30, 2006.

Mallory's Specialty Foods Balance Sheet
For month ended November 30, 2006
Assets:
Cash $33,000.00
Accounts Receivable $0.00
Prepaid Insurance $3,010.00
Inventory $60,000.00
Total Current Assets $96,010.00
Equipment $120,000.00
Less Acc. Depreciation ($83,000.00)
Net equipment $37,000.00
Total Assets $133,010.00
Liabilities:
Prepaid Sales $1,000.00
Salaries Payable $0.00
Utilities Payable $0.00
Total Liabilities $1,000.00
Equity:
Retained Earnings $42,010.00
Owner's Equity $90,000.00
Total Equity $132,010.00
Total Liabilities and Equity $133,010.00

Helpful Hints:

(1) You have been given all of the necessary balance sheet accounts in the problem itself. You need to pair the two accounts that are affected by each transaction to complete the transactions listed. For each transaction the two accounts affected could both come from only the Income Statement, or they both could come from only the Balance Sheet, or one account could come from the Balance Sheet and one account from the Income Statement. Your book has very good descriptions on how to create and use balance sheets. We will use the format in the book's examples when evaluating your work.

(2) For the transactions above you will need the following accounts that normally show up on the income statement.

Revenue accounts:
Sales Revenue

Expense accounts:
Cost of Goods Sold (COGS)
Advertising Expense
Depreciation Expense
Insurance Expense
Misc. Expenses
Rent Expense
Salaries Expense
Service Fee
Utility Expense

3. Dr. Michaella Evans, an art history professor at the University of Maryland University College, supplements her income by selling cappuccino on campus to students and other faculty members when she is not teaching, doing research, creating curriculum, or attending committee meetings. She sells iced cappuccino in hot weather. Michaella has $550 invested in her cappuccino business, which consists of $100 of miscellaneous cash that she keeps in her cash drawer, plus the cappuccino machine (which originally cost $350,) and the ice shaver.
Since there is a popular football game on the Friday of the last week of August, Michaella anticipates that Friday will be a busy day. She buys an unusually large amount of materials that goes into making and selling the cappuccino for $150 and increases the cash in her cash drawer to $200 to make change. Her supplier, Mallory's Specialty Foods, allows her to charge $100 of her total purchases, and she pays cash for the rest. Friday morning, she buys $30 for several bags of ice, and $45 for cups.
With temperatures in the 90s, Michaella sells three-quarters of her stock for $1,035 in cash. At the end of the day, she returns home with her unsold cappuccino materials (except for the unsold ice which melted) with plans to replenish her inventory, pay her supplier bill, and obtain more ice and cups for finals week.

Required
a. Prepare an income statement to reflect the results of operations for Michaella's Friday business. List any items that you found difficult to measure.
b. Evaluate Michaella's relative success in selling cappuccino.

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Kao-wen Peng

1. Today, Leila Lee, the manager of Technology Abounds, needs to make a decision on whether or not to outsource the Widget department. She needs to analyze the income statement and balance sheets for Technology Abounds' department to discover whether or not the Widget Department is performing as well as the other departments. Unfortunately, an ink accident caused the company's sole printer to malfunction. The printer department was able to get the following information from the printer before it lost all power (the computers were all being cleaned,) so Leila assigned Dr. Who, the company's accountant, the task of recreating the books before the end of the day. What were the numbers that Dr. Who recreated for Leila Lee? Here is the information obtained before the unfortunate accident:

Technology
Department Television
Department Printer
Department Widget
Department
Revenue $110,000 $230,000 M. $125,000 S. $76,000
Expenses A. $70,000 G. $130,000 $70,000 $70,000
Net Income $40,000 H. $100,000 $55,000 T. $6,000
Retained Earnings, Jan 1 B. $165,000 $377,000 $180,000 $5,000
Dividends $60,000 $77,000 N. $25,000 $1,000
Retained Earnings, Dec 31 $145,000 $400,000 O. $210,000 U. $10,000
Current Assets C. 90,000 $65,000 $30,000 V. $90,000
Non-current Assets $420,000 I. $910,000 $490,000 $310,000
Total Assets $510,000 J. $975,000 P. $520,000 $400,000
Current Liabilities D. $60,000 $20,000 Q. $20,000 $20,000
Non-current Liabilities $270,000 K. $130,000 $270,000 W. $190,000
Total Liabilities E. $330,000 $150,000 R. $290,000 X. $210,000
Owner's Equity F. $35,000 $425,000 $20,000 $180,000
Total equity $180,000 L. $825,000 $230,000 $190,000

You will find the following relationships helpful:

Retained Earnings, Jan 1 + Net Income - Dividends = Retained Earnings, Dec 31
Total Assets = Current Assets + Non-current Assets
Total Liabilities = Current Liabilities + Non-current Liabilities
Total Equity = Retained Earnings (end of year) + Owner's Equity

Helpful Hint: This problem is a chart that contains accounts from both the balance sheet and the income statement. It might be helpful to break the chart into these two statements and look for relationships. Your grade for this problem depends on your ability to demonstrate your understanding of the material. Therefore, you must, in addition to providing the correct answers, provide the equations that you used for each blank, the order in which you found the answers, and a brief explanation of your work. Remember you are trying to demonstrate your understanding of this material.

A) Expenses = Revenue - Net Income
Expenses = $110,000 - $40,000
Expenses = $70,000

B) Retained Earnings, Jan 1 + Net Income - Dividends = Retained Earnings, Dec 31
Retained Earnings, Jan 1 + $40,000 - $60,000 = $145,000
Retained Earnings, Jan 1 = $165,000

C) Total Assets = Current Assets + Non-current Assets
$510,000 = Current Assets + $420,000
Current Assets = $90,000

D) Total Liabilities = Current Liabilities + Non-current Liabilities
$330,000 = Current Liabilities + $270,000
Current Liabilities = $60,000

E) Total Assets = Total Liabilities + Total Equity
$510,000 = Total Liabilities + $180,000
Total Liabilities = $330,000

F) Total Equity = Retained Earnings (end of year) + Owner's Equity
$180,000 = $145,000 + Owner's Equity
Owner's Equity = $35,000

G) Expenses = Revenue - Net Income
Expenses = $230,000 - $100,000
Expenses = $130,000
H) Retained Earnings, Jan 1 ...

Solution Summary

This solution is comprised of a detailed explanation to answer various accounting problems.

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