The ABC Company is a mid-sized company that manufactures goods in the United States and has begun to expand the operation overseas. The company maintains a healthy balance sheet and has reported positive net income since inception.

Currently, the organization utilizes the average cost inventory method and is exploring a change in accounting principle to maximize net income and attract new stockholders. Also, the company utilizes the straight-line method of depreciating fixed assets, which are primarily machinery/equipment and several large production facilities.

The organization is a publically–traded company that sells its stock on the open market. Demand for the stock has caused an increase in the price per share, and if the trend continues, the organization is considering splitting the stock to encourage investment. The company is having success selling preferred stock on the open market as well.

ABC Company offers its employees a generous pension plan, but it is currently investigating pension plan changes that will benefit both the employees and the stockholders. Also, the company offers a 401k and an employee stock purchase plan to encourage employees to be owners of their company.

Finally, the company finances some of the major investments it has made, including warehouses and land. To accomplish company goals, it has issued bonds in which the company is now considering restructuring.

	2013	2012
Cash	$ 35,000	$ 32,000
Accounts receivable	33,000	30,000
Allowance for doubtful accounts	(1,300)	(1,100)
Inventory	31,000	47,000
Property, plant, & equipment	100,000	95,000
Accumulated depreciation	(16,500)	(15,000)
Trade accounts payable	(25,000)	(15,500)
Income taxes payable	(21,000)	(29,100)
Deferred income taxes	(5,300)	(4,600)
8% callable bonds payable	(45,000)	(20,000)
Unamortized bond discount	4,500	5,000
Common stock	(50,000)	(40,000)
Additional paid-in capital	(9,100)	(7,500)
Retained earnings	(25,200)	(64,600)
Sales	(558,300)	(778,700)
Cost of goods sold	250,000	380,000
Selling expenses	141,500	172,000
General and administrative expenses	137,000	151,300
Interest expense	4,300	2,600
Income tax expense	20,400	61,200

Additional information:
1. Los Lobos purchased $5,000 in equipment during 2007.
2. Los Lobos allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses.
3. Bad debt expense for 2007 was $5,000, and write-offs of uncollectible accounts totaled $4,800.
4. $12,000 of the debt is current portion.
Cash Sales	$72,600
Collections on Receivables	477,900
Purchases	(219,500)
Purchase of Equipment	(5,000)
Wages	(150,700)
Payments to Suppliers	(126,300)
Tax Payments	(27,800)
Borrowing	30,000
Repayment of Debt	(5,000)
Interest Payments	(3,800)
Sale of Stock	11,600
Dividends	(51,000)

On January 1, 2006, Jamona Corp. purchased 12% bonds, having a maturity value of $300,000, for $322,744.44. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2006, and mature January 1, 2011, with interest receivable December 31 of each year. The company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale. The fair value of the bonds at December 31 of each year is as follows:

·2006 – $320,500

·2007 – $309,000

·2008 – $308,000

·2009 – $310,000

·2010 – $300,000

The following information is available from Jamona’s inventory records:

	Units	Unit Cost
January 1, 2007 (beginning inventory)	600	$ 8.00
Purchases:
January 5, 2007	1,200	9.00
January 25, 2007	1,300	10.00
February 16, 2007	800	11.00
March 26, 2007	600	12.00

A physical inventory on March 31, 2007, shows 1,600 units on hand. Select any one of the inventory methods (LIFO, FIFO, Average Cost, or others).

On July 6, Jamona Corp. acquired the plant assets of Berry Company, which had discontinued operations. The appraised value of the property is:

Land	$ 400,000
Building	1,200,000
Machinery and equipment	800,000
Total	$2,400,000

Jamona Corp. gave 12,500 shares of its $100 per value common stock in exchange. The stock had a market value of $168 per share on the date of the purchase of the property.

Jamona Corp. expended the following amounts in cash between July 6 and December 15, the date when it first occupied the building.

Repairs to building	$105,000
Construction of bases for machinery to be installed later	135,000
Driveways and parking lots	122,000
Remodeling of office space in building	161,000
Special assessment by city on land	18,000

On December 20, the company paid cash for machinery, $260,000, subject to a 2% cash discount, and freight on machinery of $10,500.

On January 1, 2007, Jamona Corp. signed a 5-year, noncancelable lease for a machine. The terms of the lease called for Jamona to make annual payments of $8,668 at the beginning of each year, starting January 1, 2007. The machine has an estimated useful life of 6 years and a $5,000 unguaranteed residual value. The machine reverts to the lessor at the end of the lease term. Jamona uses the straight-line method of depreciation for all of its plant assets. Jamona’s incremental borrowing rate is 10%, and the lessor’s implicit rate is unknown.