West Company had $375,000 of current assets and $150,000 of current liabilities before borrowing $75,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on the amount of West Company's working capital?
The following information is available for Compton Company:
|
2012
|
2011
|
|
| Accounts receivable | $ 360,000 | $ 400,000 |
| Inventory | 340,000 | 420,000 |
| Net credit sales | 2,470,000 | 1,400,000 |
| Cost of goods sold | 1,860,000 | 1,060,000 |
| Net income | 300,000 | 170,000 |
The inventory turnover ratio for 2012 is
Sales 700,000
Direct Labor 92,000
Indirect Material 8,000
Work in Progress 1/1/11 22,000
Rent – Store 15,000
Electricity – Factory 20,000
Purchases, Raw Material 158,000
Sales Salaries 28,000
Finished Goods 1/1/11 35,000
Advertising 19,000
Electricity – Store 7,000
Factory Security 14,000
Depreciation – Machinery 17,000
Work in Progress 12/31/11 15,000
Rent – Factory 36,000
Raw Material 12/31/11 12,000
Indirect Labor 21,000
Finished Goods 12/31/11 23,000
Insurance – Factory 9,000
Raw Material 1/1/11 8,000
Sales Commission 34,000
Depreciation – Store Fixtures 8,000
Required:
1. Complete a Cost of Goods Manufactured Schedule, in proper form.
2. Complete an Income Statement, in proper form.
Your submission MUST be a word document. Points will be deducted for any other form of submission. Your schedule and statement must be in proper form – this means they should look like they would in an annual report – and not in a spread sheet or a work sheet. As mentioned in class live, individual overheads should be listed rather than just a total being given.
Problem 3-27 Comprehensive Problem [LO1, LO2, LO4, LO5, LO6, LO7]
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Sovereign Millwork, Ltd., produces reproductions of antique residential moldings at a plant located in Manchester, England. Because there are hundreds of products, some of which are made only to order, the company uses a job-order costing system. On July 1, the start of the company’s fiscal year, inventory account balances were as follows: |
|
|
|
|
|
Raw materials |
£ |
10,000 |
|
Work in process |
£ |
4,000 |
|
Finished goods |
£ |
8,000 |
|
|
||
|
The company applies overhead cost to jobs on the basis of machine-hours. Its predetermined overhead rate for the fiscal year starting July 1 was based on a cost formula that estimated £99,000 of manufacturing overhead for an estimated activity level of 45,000 machine-hours. During the year, the following transactions were completed: |
|
a. |
Raw materials purchased on account, £160,000. |
|
b. |
Raw materials requisitioned for use in production, £140,000 (materials costing £120,000 were chargeable directly to jobs; the remaining materials were indirect). |
|
c. |
Costs for employee services were incurred as follows: |
|
|
|
|
|
Direct labor |
£ |
90,000 |
|
Indirect labor |
£ |
60,000 |
|
Sales commissions |
£ |
20,000 |
|
Administrative salaries |
£ |
50,000 |
|
|
||
|
d. |
Prepaid insurance expired during the year, £18,000 (£13,000 of this amount related to factory operations, and the remainder related to selling and administrative activities). |
|
e. |
Utility costs incurred in the factory, £10,000. |
|
f. |
Advertising costs incurred, £15,000. |
|
g. |
Depreciation recorded on equipment, £25,000. (£20,000 of this amount was on equipment used in factory operations; the remaining £5,000 was on equipment used in selling and administrative activities.) |
|
h. |
Manufacturing overhead cost was applied to jobs, £?. (The company recorded 50,000 machine-hours of operating time during the year.) |
|
i. |
Goods that had cost £310,000 to manufacture according to their job cost sheets were completed. |
|
j. |
Sales (all on account) to customers during the year totaled £498,000. These goods had cost £308,000 to manufacture according to their job cost sheets. |
|
1. |
Prepare journal entries to record the transactions for the year. (Round your intermediate calculations to 2 decimal places. Omit the "£" sign in your response.) |
|
2. |
Prepare t-accounts for inventories, manufacturing overhead, and cost of goods sold. Post relevant data from your journal entries to these t-accounts (don’t forget to enter the opening balances in your inventory accounts). Compute an ending balance in each account. (Record the transactions in the given order. Round your intermediate calculations to 2 decimal places. Omit the "£" sign in your response.) |
|
3-a. |
Is manufacturing overhead underapplied or overapplied for the year? |
|
3-b. |
Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. (Round your intermediate calculations to 2 decimal places. Omit the "£" sign in your response.) |
|
4. |
Prepare an income statement for the year. (Input all amounts as positive values. Round your intermediate calculations to 2 decimal places. Omit the "£" sign in your response.) |
Mansfield Corporation (external funds requirement) (LO4) Mansfield Corporation had 2010 sales of $100 million. The balance sheet items that vary directly with sales and the profit margin are as follows:
|
|
Percent |
|
Cash |
5% |
|
Accounts receivable |
15 |
|
Inventory |
20 |
|
Net fixed assets |
40 |
|
Accounts payable |
15 |
|
Accruals |
10 |
|
Profit margin after taxes |
10% |
The dividend payout rate is 50 percent of earnings, and the balance in retained earnings at the end of 2010 was $33 million. Notes payable are currently $7 million. Long-term bonds and common stock are constant at $5 million and $10 million, respectively.
a. How much additional external capital will be required for next year if sales increase 15 percent? (Assume that the company is already operating at full capacity.)
b. What will happen to external fund requirements if Mansfield Corporation reduces the payout ratio, grows at a slower rate, or suffers a decline in its profit margin? Discuss each of these separately.
c. Prepare a pro forma balance sheet for 2011 assuming that any external funds being acquired will be in the form of notes payable. Disregard the information in part b in answering this question (that is, use the original information and part a in constructing your pro forma balance sheet).
On January 1, 2010, Nobel Corporation acquired machinery at a cost of $800,000. Nobel adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of ten years, with no residual value. At the beginning of 2013, a decision was made to change to the double-declining balance method of depreciation for this machine.
The amount that Nobel should record as depreciation expense for 2013 is
Question 2 options:
|
|
a) |
$80,000. |
|
|
b) |
$112,000. |
|
|
c) |
$160,000. |
|
|
d) |
none of the above. |
