III. Manufacturing, etc. (31 points) 1. What journal entries did Chevy record during 2017 related to its warrantee obligation. Assume that warrantee expense is included in "Selling and Admin. Exp.," warrantee liabilities are included in Accrued Liabilities," and warrantees are satisfied with finished goods inventory. (4 points) 2. The following relates to the questions on the next page. Use the t-accounts below for any calculations (or at least make it clear where your numbers came from). Assume that the inputs into Chevy's work-in-process during 2017 were 600 labor (paid in cash), 200 overhead (all depreciation) and the remainder was raw materials. All obsolescence was related to finished goods inventory, obsolete inventory is eventually destroyed (no proceeds) and Ferrari records any obsolescence expense as part of Selling and Admin. Costs. Please read the questions carefully and answer them on the line provided for that answer. Note that you will need information from part 1. above to solve the problem. a. On average, for how many days did finished product remain in inventory? (3 points) b. How many days on average does it take Chevy to manufacture a car? (3 points) c. How many days do raw materials remain in inventory until they are transferred to the plant floor? (3 points) d. How many days does it take from when an employee starts working on a car on the plant floor until the car is sold? Assume that the same employee works on the car throughout its time on the plant floor. (2 points) e. Assume that, on average, Chevy takes 30 days to pay its suppliers and is paid by its customers in 45 days. How many days does it take from when Chevy pays its suppliers until it receives cash from its customers. (2 points) 10 Chevy CONSOLIDATED INCOME STATEMENT Revenue Cost of sales Selling and administrative costs Research and development costs Earnings before interest and taxes Interest expense Profit before taxes Income tax expense Net profit 2017 3,417 (1,620) (309) (658) 830 (70) 760 (228) 532 14 Chevy CONSOLIDATED STATEMENT OF FINANCIAL POSITION 2017 2016 Assets Goodwill Property, plant and equipment, cost Accumulated depreciation Property, plant and equipment, net Total non-current assets Inventories, net Trade receivables, net Cash and cash equivalents Total current assets Total assets 1,416 1,363 2,518 2,367 (1,808) (1,698) 710 669 2,126 2,032 394 324 972 1,034 648 460 2,014 1,818 4,140 3,850 Equity and liabilities Contributed capital Retained earnings Total equity Employee retirement benefits liability Interest-bearing debt Trade payables Income tax payables Total equity and liabilities 602 709 606 202 1,208 911 460 534 1,800 1,748 609 615 63 42 4,140 3,850 15 Chevy NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. TRADE RECEIVABLES AND OTHER CURRENT ASSETS Trade receivables are shown net of an allowance for doubtful accounts determined on the basis of insolvency risk and historical experience. Accruals to the allowance for doubtful accounts are recorded in selling, general and administrative costs in the consolidated income statement. Changes in the allowance for doubtful accounts during the year were as follows: ( millions) At January 1, Provision Uses Allow. On Receivables Sold At December 31, 2017 31 7 (6) (3) 29 2016 37 6 (4) (8) 31 2. INVENTORIES At December 31, ( millions) Raw materials Semi-finished goods Finished goods, net Total inventories 2017 99 88 207 394 2016 96 72 156 324 Finished goods inventory is net of the allowance for obsolete inventories. The accrual to the provision for obsolete inventories recognized within general costs were were 10 million in 2017 and 2 million in 2016. Changes in the provision for obsolete inventories were as follows: ( millions) At January 1, Provision Use and other changes At December 31, 2017 61 10 (4) 67 2016 61 2 (2) 61 3. WARRANTY AND RECALL CAMPAIGNS PROVISION The provision represents the best estimate of commitments given by the Group for obligations arising from product warranties given for a specified period of time. Such provisions are recognized on shipment of the car to the customer. The warranty and recall campaigns provision is estimated on the basis of the Group's past experience and contractual terms. Related costs are recognized within general costs. ( millions) At January 1, Provision Use and other changes At December 31, 2017 122 17 (16) 123 16 III. Manufacturing, etc. (31 points) 1. What journal entries did Chevy record during 2017 related to its warrantee obligation. Assume that warrantee expense is included in "Selling and Admin. Exp.," warrantee liabilities are included in Accrued Liabilities," and warrantees are satisfied with finished goods inventory. (4 points) 2. The following relates to the questions on the next page. Use the t-accounts below for any calculations (or at least make it clear where your numbers came from). Assume that the inputs into Chevy's work-in-process during 2017 were 600 labor (paid in cash), 200 overhead (all depreciation) and the remainder was raw materials. All obsolescence was related to finished goods inventory, obsolete inventory is eventually destroyed (no proceeds) and Ferrari records any obsolescence expense as part of Selling and Admin. Costs. Please read the questions carefully and answer them on the line provided for that answer. Note that you will need information from part 1. above to solve the problem. a. On average, for how many days did finished product remain in inventory? (3 points) b. How many days on average does it take Chevy to manufacture a car? (3 points) c. How many days do raw materials remain in inventory until they are transferred to the plant floor? (3 points) d. How many days does it take from when an employee starts working on a car on the plant floor until the car is sold? Assume that the same employee works on the car throughout its time on the plant floor. (2 points) e. Assume that, on average, Chevy takes 30 days to pay its suppliers and is paid by its customers in 45 days. How many days does it take from when Chevy pays its suppliers until it receives cash from its customers. (2 points) 10 Chevy CONSOLIDATED INCOME STATEMENT Revenue Cost of sales Selling and administrative costs Research and development costs Earnings before interest and taxes Interest expense Profit before taxes Income tax expense Net profit 2017 3,417 (1,620) (309) (658) 830 (70) 760 (228) 532 14 Chevy CONSOLIDATED STATEMENT OF FINANCIAL POSITION 2017 2016 Assets Goodwill Property, plant and equipment, cost Accumulated depreciation Property, plant and equipment, net Total non-current assets Inventories, net Trade receivables, net Cash and cash equivalents Total current assets Total assets 1,416 1,363 2,518 2,367 (1,808) (1,698) 710 669 2,126 2,032 394 324 972 1,034 648 460 2,014 1,818 4,140 3,850 Equity and liabilities Contributed capital Retained earnings Total equity Employee retirement benefits liability Interest-bearing debt Trade payables Income tax payables Total equity and liabilities 602 709 606 202 1,208 911 460 534 1,800 1,748 609 615 63 42 4,140 3,850 15 Chevy NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. TRADE RECEIVABLES AND OTHER CURRENT ASSETS Trade receivables are shown net of an allowance for doubtful accounts determined on the basis of insolvency risk and historical experience. Accruals to the allowance for doubtful accounts are recorded in selling, general and administrative costs in the consolidated income statement. Changes in the allowance for doubtful accounts during the year were as follows: ( millions) At January 1, Provision Uses Allow. On Receivables Sold At December 31, 2017 31 7 (6) (3) 29 2016 37 6 (4) (8) 31 2. INVENTORIES At December 31, ( millions) Raw materials Semi-finished goods Finished goods, net Total inventories 2017 99 88 207 394 2016 96 72 156 324 Finished goods inventory is net of the allowance for obsolete inventories. The accrual to the provision for obsolete inventories recognized within general costs were were 10 million in 2017 and 2 million in 2016. Changes in the provision for obsolete inventories were as follows: ( millions) At January 1, Provision Use and other changes At December 31, 2017 61 10 (4) 67 2016 61 2 (2) 61 3. WARRANTY AND RECALL CAMPAIGNS PROVISION The provision represents the best estimate of commitments given by the Group for obligations arising from product warranties given for a specified period of time. Such provisions are recognized on shipment of the car to the customer. The warranty and recall campaigns provision is estimated on the basis of the Group's past experience and contractual terms. Related costs are recognized within general costs. ( millions) At January 1, Provision Use and other changes At December 31, 2017 122 17 (16) 123 16