ACC 333 Lecture Notes - Lecture 16: Deferral, Office Supplies, Finished Good
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The Duncan Company has just completed a number of budgets forthe coming year. The cost of goods manufactured schedule, theproforma income statement and the balance sheet still have to becompleted. The following information is available:
Prior year Balance Sheet:
Cash | $35,000 | Accounts Payable | $98,000 |
Accounts Receivable | 45,000 | Other Current Liabilities | 39,000 |
Materials Inventory | 35,000 | Income Taxes Payable | 21,000 |
WIP Inventory | 25,000 | ||
Finished Goods Inventory | 32,000 | Long-Term Debt | 250,000 |
Prepaid Expenses | 15,000 | ||
Plant and Equipment | 450,000 | Common Stock | 100,000 |
Accumulated Depreciation | (120,000) | Retained Earnings | 27,000 |
Other Assets | 18,000 | ||
Total Assets | $535,000 | Total Liab. & Equity | $535,000 |
Information from recent budgets for the coming year:
1. Projected sales are $1,800,000 (12,690 units)
2. Projected direct material purchases are $500,000
3. Projected direct material usage is $495,000
4. Projected direct labor expense is $400,000
5. Projected overhead is $380,000
6. Projected selling expenses are $120,000
7. Projected administrative expenses are $300,000
8. Projected cash collections are $1,785,000
9. Projected payments for materials (accounts payable) are$520,000
10. Projected payments for other operating expenses (other currentliabilities) are $1,130,000
11. Projected depreciation expense is $55,000 and is alreadyincluded in mfg overhead
Additional information that is available:
1. The expected tax rate is 35%
2. The company is planning a stock issue of $25,000
3. Income taxes are paid 3 months after the year-end
4. The company anticipates purchasing a new patent for $10,000during the year.
5. WIP inventory is expected to decrease by $2,000
6. Finished goods inventory is expected to increase by$8,000
7. Due to insurance rate increases, it is expected that prepaidexpenses will increase by $3,000
Investment information:
1. A purchase of additional equipment for $75,000 is expected onJanuary 1st.
2. The purchase will be made using $50,000 cash and long-term debtwill be increased by $25,000
Long-Term Debt information:
1. All long-term debt will have an 8% annual rate.
2. A payment of $50,000 including BOTH principle and interestwill be made on December 31st.
Required: Prepare a cost of goods manufactured schedule,a proforma income statement and proforma balancesheet.
Star Videos, Inc., produces short musical videos for sale to retail outlets. The companyâs balance sheet accounts as of January 1 are given below.
Star Videos, Inc.
Balance Sheet
January 1
Assets
Cash $ 92,000
Accounts receivable 115,600
Inventories:
Raw materials (film, costumes) $ 17,800
Videos in process 60,200
Finished videos awaiting sale 91,200 169,200
Prepaid insurance 12,600
Studio and equipment (net) 603,000
Total assets $ 992,400
Liabilities and Stockholdersâ Equity
Accounts payable $ 211,000
Retained earnings 781,400
Total liabilities and stockholdersâ equity $ 992,400
Because the videos differ in length and in complexity of production, the company uses a job-order costing system to determine the cost of each video produced. Studio (manufacturing) overhead is charged to videos on the basis of camera-hours of activity. The companyâs predetermined overhead rate for the year ($40 per camera-hour) is based on a cost formula that estimated $280,000 in manufacturing overhead for an estimated allocation base of 7,000 camera-hours. Any underapplied or overapplied overhead is closed to cost of goods sold. The following transactions were recorded for the year:
Film, costumes, and similar raw materials purchased on account, $208,500.
Film, costumes, and other raw materials issued to production, $219,500 (85% of this material was considered direct to the videos in production, and the other 15% was considered indirect).
Utility costs incurred (on account) in the production studio, $81,600.
Depreciation recorded on the studio, cameras, and other equipment, $90,000. Three-fourths of this depreciation related to actual production of the videos, and the remainder related to equipment used in marketing and administration.
Advertising expense incurred (on account), $155,500.
Salaries and wages paid in cash as follows:
Direct labor (actors and directors) $ 99,200
Indirect labor (carpenters to build sets, costume designers, and so forth) $ 100,500
Administrative salaries $ 102,400
Prepaid insurance expired during the year, $10,050 (70% related to production of videos, and 30% related to marketing and administrative activities).
Miscellaneous marketing and administrative expenses incurred (on account), $10,350.
Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,250 camera-hours of activity during the year.
Videos that cost $548,000 to produce according to their job cost sheets were transferred to the finished videos warehouse to await sale and shipment.
Sales for the year totaled $1,060,000 and were all on account.
The total cost to produce the videos that were sold according to their job cost sheets was $591,810.
Collections from customers during the year totaled $1,010,000.
Payments to suppliers on account during the year, $585,000.
Underapplied or overapplied overhead $__?__.
Required:
1. Prepare a transaction analysis that records all of the above transactions.
2. Prepare a schedule of cost of goods manufactured for the year.
3. Prepare a schedule of cost of goods sold for the year.
4. Prepare an income statement for the year.
PLEASE SHOW ALL WORK AND BOLD ANSWERS. THANK YOU!!
Prepare a transaction analysis that records all of the above transactions. (Amounts to be deducted should be indicated by a minus sign.)
Prepare a schedule of cost of goods manufactured for the year.
Prepare a schedule of cost of goods sold for the year.
Prepare an income statement for the year.
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INSTRUCTIONS: PLEASE SELECT THE CORRECT ANSWER CHOICE
Use the following balance sheet information from Aggie Health and Fitness Centersâ month-end financial statements dated August 31, 2016 and open t-accounts for each balance sheet line item. Then use the enclosed TRANSACTIONS AND ADDITIONAL INFORMATION to complete the General Journal, Ledger, Worksheet and Financial Statements for the second month of operations. Use the Perpetual Inventory method as discussed in class for all sales of merchandise.
Aggie Health and Fitness Center
Balance Sheet
As of August 31, 2016
Assets: Liabilities:
Cash $4,500 Accounts Payable $2,900
Accounts Receivable 6,500 Salaries Payable 5,600
Inventory â Concessions 1,100 Interest Payable 1,375
Supplies 400 Unearned Revenue 500
Prepaid Insurance 4,400 Note Payable 330,000
Total Current Assets 16,900 Total Current Liabilities 340,375
Land 80,000 Stockholderâs Equity
Building 408,000 Common Stock 245,500
Equipment 67,200 Retained Earnings 3,563
Furniture and Fixtures 20,016 Total Liab. and SHE $589,438
Accumulated Depreciation (2,678)
Total Assets $589,438
Fiscal Year
Aggie Health and Fitness Center was established as a business in August 2016. Aggie Health and Fitness Center follows a fiscal year end of July 31.
Inventories
Inventories consist of concessions available for resale to members. These concessions consist of energy drinks, nutritional supplements, etc. Inventories are valued on a first-in, first-out basis, using the perpetual method. (Note: The Center plans to expand its inventory during September to include logo-based apparel.)
Prepaid Insurance
Aggie Health and Fitness Center carries property insurance through Good Hands Insurance Co. The Center purchased a 12 month policy on August 1, 2016 for $4,800.
Fixed Assets
Property and Equipment are stated on the basis of historical cost.
Land and Building: The Land and Building was a group purchase made on August 1, 2016. The total purchase price amounted to $488,000. On the date of purchase the land was appraised at $80,000 and the building was appraised at $408,000. The Health and Fitness Center paid $158,000 down and signed a $330,000, 12-month, 5% note for the balance. Depreciation on the building is computed using the straight-line basis with no salvage value. The life of the building is estimated to be 20 years.
Equipment and Furniture and Fixtures: All equipment and furniture and fixtures were purchased for cash on August 1, 2016. Both equipment and furniture and fixtures are depreciated using the straight-line method of depreciation. No salvage value is anticipated. The useful life of the equipment is 8 years. The useful life of the furniture and fixtures is 6 years.
The book values of these assets are presented below:
Land $80,000 $80,000
Building 408,000
Less: Accumulated Depr 1,700 406,300
Equipment 67,200
Less: Accumulated Depr 700 66,500
Furniture and Fixtures 20,016
Less: Accumulated Depr 278 19,738
Net Plant, Property, and Equipment $572,538
Unearned Revenue
The balance in the unearned revenue account is due to the sale of gift certificates redeemable for massage therapy.
Revenue Recognition
The Company recognizes service revenue upon providing services for customers. Sales revenue is recognized upon customer receipt of goods. Revenue for gift certificate sales is recognized at redemption. (Note: all memberships sold during the first month of operations were for one month only).
Instructions
Use the following TRANSACTIONS AND ADDITIONAL INFORMATION to complete the General Journal, Ledger, Worksheet and Financial Statements for the second month of operations for Aggie Health & Fitness Center (The Fitness Center). Use the Perpetual Inventory method as discussed in class for all sales of merchandise.
TRANSACTIONS:
| TRANSACTION # | DATE | TRANSACTION DESCRIPTION |
| 1 | Sept 1 | Purchased a 3-month advertising campaign to be broadcast on local radio stations during the months of September, October and November. Paid $1,500 in advance for this ad campaign. |
| 2 | Sept 1 | Sold 160, twelve-month memberships to the Fitness Center for $420 each. All membership dues were collected in cash. |
| 3 | Sept 2 | Purchased office supplies for $325 on an open account from Kelliâs Office Supplies. The Fitness Center has 30 days to pay for the supplies. |
| 4 | Sept 3 | Purchased on account a total of 180 shirts with an embroidered Aggie Health and Fitness Center logo from C & C Creations at a price of $14 per shirt. These shirts are available for resale to customers. |
| 5 | Sept 4 | Paid wages due to employees on August 31 |
| 6 | Sept 5 | Purchased flowers for the reception desk for $54 cash |
| 7 | Sept 6 | Purchased concessions for $5,200 on account from Advocare Distributing, Inc. These concessions consist of energy drinks, nutritional supplements, etc., and are available for resale to customers |
| 8 | Sept 7 | Provided 50 hours of personal training services to members. Fees are charged at a rate of $45 an hour. The total amount was billed to individual memberâs accounts |
| 9 | Sept 10 | Paid the total amounts due to Kelliâs Office Supplies for the Sept. 2 transaction and C&C Creations for the Sept. 3 transaction |
| 10 | Sept 12 | Sold thirty-five shirts to a corporate member, Allen & Associates for $36 each. Collected $500 in cash and the balance is owed to the Fitness Center on account |
| 11 | Sept 13 | The owners of the company invested an additional $18,000 into Aggie Health and Fitness Center in exchange for common stock |
| 12 | Sept 14 | Gift certificates totaling $300 were redeemed for massage therapy performed |
| 13 | Sept 15 | The concessions stand reported sales of merchandise for $5,400 for the first half of the month. The concessions that were sold had an original cost of $2,320. All of these transactions were billed directly to each memberâs account |
| 14 | Sept 15 | For the first half of September, provided 22 hours of massage therapy at a rate of $75/hour. Billed the individual membersâ accounts for services provided |
| 15 | Sept 16 | Received $6,775 for services previously billed to customerâs accounts |
| 16 | Sept 16 | Paid wages and salaries of $4,700 to Aggie Health and Fitness Center employees |
| 17 | Sept 17 | Purchased on account additional concessions for $2,100 from Advocare Distributing |
| 18 | Sept 20 | Paid $5,680 on accounts payable |
| 19 | Sept 21 | Collected the balance of what was owed on account from Allen & Associates for the Sept. 12 transaction |
| 20 | Sept 22 | Sold forty-seven shirts to individual customers for $40 each. Collected 30% in cash, the balance is owed to Aggie Health and Fitness Center on account |
| 21 | Sept 23 | Received a utility bill that totaled $535 for the month. It is due October 12 |
| 22 | Sept 24 | Sold a gift certificate for $100 cash. The gift certificate is valid for one year and is redeemable for a 60 -minute massage |
| 23 | Sept 26 | Cash sales of shirts: 30 shirts sold at $40 each |
| 24 | Sept 27 | Aggie Health and Fitness Center paid a dividend of $4,000 to its shareholders |
| 25 | Sept 28 | Received $4,225 for services previously billed to customersâ accounts |
| 26 | Sept 29 | Purchased additional equipment for $28,000; paid $5,000 in cash and signed a two year, 4% note for the balance |
| 27 | Sept 29 | Fees for massage therapy for the last half of September totaled $4,900. All of these transactions were collected in cash. Fees for personal training given during the last half of September amounted to $7,200. Fifty percent of the personal training fees were collected in cash |
| 28 | Sept 30 | âCredit sales for concessions during the last half of September totaled $1,900. âCash sales for concessions during the last half of September totaled $480. âCost of the concessions sold during the last half of September was $1,015 |
ADDITIONAL INFORMATION:
1.Depreciation expense for the month of September should be calculated using the straight-line method.
2.At the end of the month, a physical count was taken of the Fitness Centerâs inventories.
It revealed the following information:
a.Sixty of the shirts for resale were on hand at September 30.
b.Concession merchandise still on hand as of September amounted to $4,990.
3. Salaries earned by employees but unpaid on September 30 totaled $5,115.
4. Office Supplies still on hand on September totaled $100.
What is the correct adjusting journal entry for Insurance Expense/Prepaid Insurance?
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What is the correct adjusting journal entry for Interest Expense/Interest Payable?
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