09 May WHICH ALTERNATIVE WOULD YOU RECOMMEND AND WHY?
1. Bella’s Beauty Salon’s unadjusted trial balance for the current year follows: .0/msohtmlclip1/01/clip_image002.png”> 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 $33 000 Accounts receivable 14 200 Office supplies 1 700 Vehicles 100 000 Accumulated depreciation—Vehicles 45 000 Accounts payable 11 500 Common stock 1 000 Retained earnings 70 900 Dividends 40 000 Fees earned 155 000 Rent expense 13 000 Office supplies expense 2 000 Utilities expense 2 500 Depreciation Expense—Vehicles 15 000 Salary expense 50 000 Fuel expense 12 000 Totals $283 400 $283 400 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 Activities Units Acquired at Cost Units Sold at Retail April 1 Beginning Inventory 175 units @ $15.00 4 Purchase 150 units @ $16.00 7 Sales 160 units @ $30.00 10 Purchase 200 units @ $17.00 16 Sales 250 units @ $30.00 25 Purchase 160 units @ $18.00 28 Sales 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: .0/msohtmlclip1/01/clip_image004.png”> 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: .0/msohtmlclip1/01/clip_image006.png”> .0/msohtmlclip1/01/clip_image008.png”> 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 $135 000 Depreciation expense—Factory equipment 52 400 Depreciation expense—Delivery vehicles 36 200 Depreciation expense—Office equipment 24 800 Advertising expense 22 350 Direct labor 268 000 Factory supplies used 12 000 Income taxes expense 91 500 Indirect labor 35 000 Indirect material 24 000 Factory insurance 15 500 Factory utilities 14 000 Factory maintenance 7 500 Inventories Raw materials inventory January 1 32 000 Raw materials inventory December 31 28 000 Work in Process inventory January 1 33 780 Work in Process inventory December 31 37 460 Finished goods inventory January 1 56 970 Finished goods inventory December 31 62 000 Raw materials purchases 325 000 Rent expense—Factory 50 000 Rent expense—Office space 24 000 Rent expense—Selling Space 24 000 Sales salaries expense 97 500 Sales 1 452 000 Sales discounts 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. Alternative 1 Alternative 2 Variable costs per unit $20 ? Fixed costs $200 000 $274 400 Selling price per unit $40 $40 Income tax rate 25% 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?
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