Instructions (c) Question 1: 35 marks 1. The following items are taken from the financial statements of Harley Ltd. for the fiscal year ended December 31, 2016. Note they are in alphabetical order. Prepare a classified Statement of Financial Position on De- cember 31, 2016, assuming the bank loan payable is a non- current liability. (17 marks) (a) Prepare the Income Statement for the year. (12 marks) Accounts payable Accounts receivable Accumulated depreciation video equipment Advertising expense Cash Common shares (10,000 shares) Depreciation expense Dividends Income tax expense Insurance expense Bank loan payable Prepaid insurance Rent expense Retained eamings, January 1, 2016 Salaries expense Salaries payable Service revenue Supplies Supplies expense Video equipment $25.000 20,000 30,000 20,000 12,000 80,000 15,000 15,000 11,000 6,000 70,000 6,000 24,000 15,000 35,000 5,000 150,000 5,000 6,000 200,000 (b) Prepare the Statement of Changes in Equity for the year. (6 marks) 2. The condensed statement of financial position and income statement data for Kitchener Corporation are as follows: Additional information: 1. The allowance for doubtful accounts was: 2014 S 10.000 2015 S 15,000 2016 $ 20,000 2. Assume all sales were credit sales. 3. Net cash provided by operating activities was: 2015 S 100,000 2018 S 134,000 2014 Kitchener Corporation Statement of Financial Position December 31, 2016 2016 2015 Assets Cash $80.000 $14.000 Accounts Receivable (net) 85.000 70.000 Inventory 75.000 05.000 Other current assets 60.000 50.000 Lono-term investments 100.000 75.000 Property. Plant & Equipment (net) 470.000 350.000 Total Assets $8.50.000 $824.000 $10.000 53.000 50.000 62.000 50.000 315.000 5540.000 Instructions: (a) Calculate the following ratios. (20 marks) 2016 2015 1. Current ratio S75.000 116.000 191.000 $80.000 85.000 125.000 $85.000 70.000 135.000 Liabilities & Shareholders' Equity Liabilities Current Liabilities Non-current liabilities Total Liabilities Shareholders' Equity Common Shares Retained Earnings Total Shareholders' Equity Total Liabilities & Shareholders' Equity $350.000 309.000 659.000 5850.000 $319.000 205.000 499.000 $824.000 $275.000 130.000 405.000 $540.000 2. Receivables turnover 3. Inventory turnover 4. Debt to total assets 5. Times interest earned Kitchener Corporation Income Statement Year Ended December 31, 2016 2016 Sales $950,000 Less: Sales returns and allowances 55.000 Net Sales 895,000 Cost of goods sold 475,000 Gross Profit 420,000 Operating Expenses 275,000 Proft from operations 145,000 Interest expense 6,000 Proft before income tax 139.000 Income tax expense 35,000 Proft $104,000 6. Cash total debt coverage 7. Gross profit Margin 8. Profit margin 9. Asset turnover 10. Return on assets 2015 $825.000 35.000 790,000 425,000 305,000 200,000 105,000 5,000 100.000 25,000 $75,000 Question 3: (16 marks) 1. Highland Chair Company is considering the launch of a new ergonomic chair. The following is a summary of their plans: Highland acquired its factory building about 20 years ago. For several years, the company has rented out a small, unused part of the building. They would now use this space for the production for the new chair. The renter's lease of $2,000 a month will expire soon and would not be renewed. As in past years, the unused space will continue to be depreciated on a straight-line basis. The plastic pellets (direct materials) and employee's wages (direct labour cost) for the new product would be $50 per unit. In order to have a place to store finished chairs, the company would have to rent a small warehouse nearby. The rental cost would be $2,000 per month. It would cost the company an additional $4,000 each month to advertise the new product. A new production supervisor would be hired to oversee production of the chairs who would be paid $3,000 per month. The company would pay a sales commission of $10 for each chair that is sold. Instructions: Complete the chart below by placing an "X" under each column heading that helps to identify the costs listed to the left. There can be "X's" placed under more than one heading for a single cost. For example, a cost might be a product cost, an opportunity cost, and a sunk cost; there would be an "X placed under each of these headings on the answer sheet opposite the cost. (16 marks) Opportunity Cost Sunk Cost Product Variable Cost Fixed Cost cost Selling & Admin Cost 4. The Cabinet Shop is a manufacturer of a specialty cabinets used in automobile assembly plants. During the first quarter the company produced and sold 2,500 units and had total variable costs of $300,000 and total fixed costs $400,000. The sell price per unit is $350. The company has a relevant range of 2,000 to 3,000 units. Instructions: a) Compete the schedule below for the company's total costs and unit costs. (6 Marks) The Cabinet Shop Cost Summary Units Sold Sell Price per unit = $350) 2.500 3,000 Variable Cost Total Fixed Cost Total $300,000 $250,000 Variable Cost per Unit Fixed cost per Unit b) In the second quarter the company expects to produce and sell 3,000 units. Prepare an income statement for the second quarter, using the contribution approach. (5 marks) The Cabinet Shop Income Statement - Contribution Method) For the Second Quarter of Current Year Question 5 (8 marks) Specialty (SDI) recently started operations to obtain a share of the growing golfing market. SDI manufactures two models of specialty drivers: the Thunderbolt model and the Earthquake model. They want to update their costing system in 2017, changing from a single overhead application rate using direct labour-hours to activity- based costing. The controller has identified the following three activities as cost drivers, along with the related cost of the pools: Model Number of Orders Shipped Number of Material Requisitions 600,000 Number of Product Inspections 75,000 Total Cost in the Cost Pool 250,000 Thunderbolt Earthquake 800 400 250 125 50 50 Total Activity Level Budgeted Overhead Rate Required: a. Using ABC, complete the schedule above and calculate the total activity level and the budgeted overhead rate for each activity. b. What would the total overhead allocation be to the Thunderbolt driver in 2017? Show calculations. Question 6 - (10 marks) The Toolbox Shop is a large retailer of toolboxes for installation on pickup trucks. An income statement for the company's toolbox department for the most recent quarter is presented below: Toolbox Shop Income Statement - Truck Toolbox Department For the 4th Quarter of 2016 Sales (2,500 units @ $450 each) Less cost of goods sold Gross Margin Less operating expenses: Selling expenses Administrative expenses Profit $1,125,000 562,500 562,500 200,000 150,000 350,000 $212,500 The department's cost of goods sold is a variable expense. The total selling expenses of $200,000 is made up of $125,000 that is fixed and the remainder is variable with respect to the number of units. The administrative expenses are 35% variable and 65% fixed. Prepare an income statement for the quarter, using the contribution margin approach. Question 7 - (10 marks) Beaver Paddle Company's most recent income statement is presented below: Sales Less variable expenses Contribution margin Less fixed expenses Net loss $75,000 37,500 37,500 40,000 $2,500 The company sells its only product for $15 per unit. There were no beginning or ending inventories. a. Compute the company's break-even point in units sold. (3 marks) b. Compute the total variable expenses at the break-even point. (2 marks) c. How many units would have to be sold to earn a target profit of $10,000? (2 marks) d. The sales manager is convinced that a $8,000 increase in the advertising budget would increase to- tal sales by $25,000. Would you advise the increased advertising outlay? (4 marks) Question 8 (10 marks) Waterloo Co. has four operating divisions with the following information for the most recent fiscal year. Division Sales Net operating income Average operating assets $15,000,000 $750,000 $4,000,000 B $20,000,000 $1,000,000 $7,000,000 $25,000,000 $800,000 $5,000,000 $10,000,000 $750,000 $6,000,000 Return on Investment Note: The minimum rate of return set by company management is 14%. a. Calculate the return on investment for each division. b. Which divisions are meeting the rate of return set by management? c. If the divisions were each offered an opportunity to add an investment that would result in a 17% ROI, which division would be less likely to accept the new opportunity