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Accounting for Business Operations ACC 20364 - Final Examination 1. Bella's Beauty Salon's unadjusted trial balance for the current year follows: Additional information: a. An insurance policy examination showed $1,240 of expired insurance. b. An inventory count showed $210 of unused shop supplies still available. c. Depreciation expense on shop equipment, $350. d. Depreciation expense on the building, $2,220. e. A beautician is behind on space rental payments and $200 of accrued revenue was unrecorded at the time the trial balance was prepared. f. $800 of the Unearned Rent account balance was earned by year-end. g. The one employee, a receptionist, works a five-day workweek at $50 per day. The employee was paid last week but has worked four days this week for which she has not been paid. h. Three months' property taxes, totaling $450, have accrued. This additional amount of property taxes expense has not been recorded. i. One month's interest on the note payable, $600, has accrued but is unrecorded. Required: Based on the additional information, prepare the adjusting journal entries for Bella's Beauty Salon. 2. The following is the adjusted trial balance for Rapid Car Services for the most recent year: Rapid Car Services, Inc. Adjusted Trial Balance For the year ended December 31 Cash Accounts receivable Office supplies Vehicles Accumulated depreciationVehicles Accounts payable Common stock Retained earnings Dividends Fees earned Rent expense Office supplies expense Utilities expense Depreciation ExpenseVehicles Salary expense Fuel expense Totals $33,000 14,200 1,700 100,000 45,000 11,500 1,000 70,900 40,000 155,000 13,000 2,000 2,500 15,000 50,000 12,000 $283,400 $283,40 0 Required: Prepare the following financial statements for Rapid Car Services, Inc. from the adjusted trial balance. Assume the stockholders did not make any additional investments in the company during the year. Income Statement Statement of Retained Earnings Balance Sheet 3. END Company reported the current month purchase and sales data for its only product as follows: Date April 1 4 7 10 16 25 28 Activities Beginning Inventory Purchase Sales Purchase Sales Purchase Sales Units Acquired at Cost 175 units @ $15.00 150 units @ $16.00 Units Sold at Retail 160 units @ $30.00 200 units @ $17.00 250 units @ $30.00 160 units @ $18.00 150 units @ $32.00 Required: Determine the cost assigned to ending inventory and cost of goods sold using LIFO with the perpetual inventory system. 4. The following information is available for the Edwards Company for its March 31 bank reconciliation: From the March 31 bank statement: NSF: A check from a customer, Cook Co. in payment of their account. IN: Interest earned on the account. From the Edwards Company's accounting records: Required: Based on the above information, prepare the 2-column bank reconciliation for the Edwards Company for March. 5. Information for Jason Metalworks as of December 31 follows. Administrative salaries expense Depreciation expenseFactory equipment Depreciation expenseDelivery vehicles Depreciation expenseOffice equipment Advertising expense Direct labor Factory supplies used Income taxes expense Indirect labor Indirect material Factory insurance Factory utilities Factory maintenance Inventories Raw materials inventory, January 1 Raw materials inventory, December 31 Work in Process inventory, January 1 Work in Process inventory, December 31 Finished goods inventory, January 1 Finished goods inventory, December 31 Raw materials purchases Rent expenseFactory Rent expenseOffice space Rent expenseSelling Space Sales salaries expense Sales Sales discounts $135,00 0 52,400 36,200 24,800 22,350 268,000 12,000 91,500 35,000 24,000 15,500 14,000 7,500 32,000 28,000 33,780 37,460 56,970 62,000 325,000 50,000 24,000 24,000 97,500 1,452,0 00 29,000 Required: (a) Prepare the company's schedule of cost of goods manufactured for the year ended December 31 (b) Prepare the company's income statement that reports separate categories for selling and general and administrative expenses. 6. Wagner Company is analyzing two alternative methods of producing its product. The production manager indicates that variable costs can be reduced 40% by installing a machine that automates production, but fixed costs would increase. Alternative 1 shows costs before installing the machine; Alternative 2 shows costs after the machine is installed. Variable costs per unit Fixed costs Selling price per unit Income tax rate Alternative 1 $20 $200,000 $40 25% Alternative 2 ? $274,400 $40 25% Required: (a) Compute the break-even point in units and dollars for both alternatives. (b) Prepare a forecasted income statement for both alternatives assuming that 30,000 units will be sold. The statements should report sales, total variable costs, contribution margin, fixed costs, income before taxes, income taxes, and net income. (c) Compute the degree of operating leverage for each alternative. Which alternative would you recommend and why? Answer 1 Bella's Beauty Saloon Adjusting Entries S.N. a b c d e f g h i 2 Description Debit 1,240 Insurance Expenses Prepaid Insurance Credit 1,240 Shop Supplies Expenses Shop Supplies 780 Depreciation Expenses Accumulated Depreciation-Shopm Equipment 350 780 350 Depreciation Expenses Accumulated Depreciation-Building 2,220 2,220 Accounts Receivable Rent Revenue 200 Unearned Rent Rent Revenue 800 Wages Expenses Wages Payable 200 Property Tax Expenses Accrued Property Taxes 450 Interest Expenses Interest Payable 600 200 800 200 450 600 Rapid Car Service Inc Income Statement for the year ended December 31 Revenue Fees Earned Expenses: Rent Expenses Office Supplies Expenses Utilities Expenses Depreciation Expenses Vehicle Salary Expenses Fuel Expenses Total Expenses Net Income $ $ 155,000 $ 94,500 60,500 13,000 2,000 2,500 15,000 50,000 12,000 Statement of Retained Earnings for the year ended December 31 Balance at beginning of the year $ Net Income for year Dividends Balance at end of year $ Balance Sheet as of December 31 Assets Current Assets Cash 33,000 Accounts Receivables 14,200 Office Supplies 1,700 Total Current Assets Vehicles 100,000 Accumulated Dep. Vehicles 45,000 Total Assets Liabilities And Stockholfers Equity Current Liabilities Accounts Payable Stockholders Equity Common Stock Retained Earnings Total Liabilities And Stockholfers Equity 70,900 60,500 40,000 91,400 48,900 55,000 103,900 11,500 1,000 91,400 103,900 3 Date Receipts Qty. April, 1 4 150 Rate End Company Issue Qty. $ 16 16 COGS $ 2,400 7 10 Rate 150 10 200 17 16 15 2,400 150 200 17 3,400 3,400 Balance Qty. 175 175 150 165 165 200 Rate 15 15 16 $ 2,625 2,625 2,400 15 15 17 2,475 2,475 3,400 30 25 150 160 18 4 Edwards Company Bank reconciliation Statement Balance as per bank Statement Add: Deposit in Transit Less Checks issued but not cleared Ch. No 2907 , 2911 15,008 2,090 800 Blance 5 a Jason Metal Works Schedule of Cost of Goods manufactured Raw Material Inventory Jan 1 Material Purchase Raw Material Inventory Dec 31 Raw Material Consumption Direct labor Depreciation Expenses- Factory equipments Factory Supplies used Indirect labor Indirect material Factory Insurance Factory Utilities Factory maintenance Rent Expenses- Factory Beginning WIP Ending WIP Cost of Goods Manufactured 32,000 325,000 28,000 329,000 268,000 52,400 12,000 35,000 24,000 15,500 14,000 7,500 50,000 Cost Of Goods Sold Beginning Finished Goods Inventory Cost of goods manufactured Ending Finished Goods Inventory Cost Of Goods Sold b 210,400 33,780 37,460 803,720 56,970 803,720 62,000 798,690 Income Statement Sales revenue net of discount Cost of Goods Sold Gross Margin Expenses Selling expenses Sales Salaries Depreciation Expenses- Delivery Vehicles Advrtising Expenses Rent Expenses- Selling Space Total Selling Expenses General and Administrative Expenses Administrative Salaries Depreciation Expenses- Office Equipments Rent Expenses- Office Space Total Gen. and Administrative Expenses Total Selling, Gen. and administrative Expenses Operating Income Income Tax Expenses Net Income 6 1,423,000 798,690 624,310 97,500 36,200 22,350 24,000 180,050 135,000 24,800 24,000 183,800 363,850 260,460 91,500 168,960 Wagner Company Selling Price per unit Variable Cost per unit CM per unit CM Ratio Fixed Costs a Break Even Point in dollars= Fixed costs/ CM Ratio Break Even Point in units= Alternative 1 Alternative 2 $ 40 $ 40 20 12 20 28 50.00% 70.00% $ 200,000 $ 274,400 Alternative 1 Alternative 2 $ 400,000 $ 392,000 10,000 8,680 9,800 Total COGS Balance as per accounting records Add 2,090 Interest credited by bank Less NSF Check 800 16,298 Blance 18 2,880 28 Total Purchases 15 450 135 135 160 2,700 135 10 9,100 Total Inventory 16,503 295 295 500 500 16,798 15 15 18 15 18 2,025 2,025 2,880 2,025 180 2,205 Fixed costs/ CM per unit b Forecast Income Statement Alternative 1 Sales $ 1,200,000 Less Variable Costs 600,000 Total contribution Margin $ 600,000 Fixed Costs $ 200,000 Operating Income (Income before Tax) 400,000 Income Tax 100,000 Net Income 300,000 c Degree of Operating leverage= Total Contribution Margin/ operating Income Alternative 2 $ 1,200,000 360,000 $ 840,000 $ 274,400 565,600 141,400 424,200 Alternative 1 Alternative 2 150.00% 148.51% Alternative 2 is recommended because net income of this alternative is higher than net income of alternative 1 and also operating income is higher