ADMS 2500 Lecture 2: ADMS 2500
ADMS 2500 Full Course Notes
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A fire destroyed your firmâs ending balance sheet and income statement after the year-end
but before the financial statements are released. However, you have been successful in obtaining the
numbers for the beginning balance sheet and the statement of cash flows, which are provided to you and
your team members in Excel format. Fields representing the missing balance sheet and income statement
are End of year2 in the Excel sheet
CONSOLIDATED BALANCE SHEETS (USD $) | End of year 2 | End of year 1 | |
In Thousands, unless otherwise specified | |||
Current assets: | |||
Cash and cash equivalents | ã | 598 | |
Receivables, net | ã | 230 | |
Inventories, net | ã | 2309 | |
Other current assets | ã | 47 | |
Total current assets | ã | 3184 | |
Property and equipment, net of accumulated depreciation | ã | 1292 | |
Assets held for sale | ã | 1 | |
Goodwill | ã | 76 | |
Intangible assets, net | ã | 29 | |
Other assets, net | ã | 32 | |
Assets, Total | ã | 4614 | |
Current liabilities: | ã | 0 | |
Current portion of long-term debt | ã | 0 | |
Accounts payable | ã | 2030 | |
Accrued expenses | ã | 380 | |
Other current liabilities | ã | 150 | |
Total current liabilities | ã | 2560 | |
Long-term debt | ã | 604 | |
Other long-term liabilities | ã | 239 | |
Commitments and Contingencies | ã | 0 | |
Stockholders Equity Attributable to Parent [Abstract] | ã | 0 | |
Preferred stock, nonvoting, $00001 par value | ã | 0 | |
Common stock, voting, $00001 par value | ã | 0 | |
Additional paid-in capital | ã | 520 | |
Treasury stock, at cost | ã | -27 | |
Accumulated other comprehensive income (loss) | ã | 3 | |
Retained earnings | ã | 715 | |
Total stockholders equity | ã | 1210 | |
Liabilities and Stockholders Equity, Total | ã | 4613 | |
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | 12 Months Ended | ||
In Thousands, except Per Share data, unless otherwise specified | Year 2 | ||
Net sales | ã | ||
Cost of sales, including purchasing and warehousing costs | ã | ||
Gross profit | ã | ||
Selling, general and administrative expenses | ã | ||
Operating income | ã | ||
Interest expense | ã | ||
Other income, net | ã | ||
Total other, net | ã | ||
Income before provision for income taxes | ã | ||
Provision for income taxes | ã | ||
Net income | ã | ||
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 12 Months Ended | ||
In Thousands, unless otherwise specified | Year 2 | ||
Cash flows from operating activities: | |||
Net income | $392 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Depreciation and amortization | 208 | ||
Share-based compensation | 13 | ||
Loss on property and equipment, net | 1 | ||
Other | 2 | ||
Provision for deferred income taxes | -2 | ||
Excess tax benefit from share-based compensation | -16 | ||
Increase Decrease in Operating Capital | |||
Receivables, net | -32 | ||
Inventories, net | -204 | ||
Other assets | 11 | ||
Accounts payable | 113 | ||
Accrued expenses | 63 | ||
Other liabilities | -4 | ||
Net cash provided by operating activities | 545 | ||
Cash flows from investing activities: | |||
Purchases of property and equipment | -196 | ||
Payments to Acquire Businesses, Gross | -186 | ||
Sale of certain assets of acquired business | 19 | ||
Proceeds from sales of property and equipment | 1 | ||
Net cash used in investing activities | -362 | ||
Cash flows from financing activities: | |||
(Decrease) increase in bank overdrafts | -3 | ||
Decrease in financed vendor accounts payable | 0 | ||
Issuance of senior unsecured notes | 449 | ||
Payment of debt related costs | -9 | ||
Borrowings under credit facilities | 0 | ||
Payments on credit facilities | 0 | ||
Dividends paid | -18 | ||
Proceeds from the issuance of common stock, primarily exercise of stock options | 4 | ||
Tax withholdings related to the exercise of stock appreciation rights | -22 | ||
Excess tax benefit from share-based compensation | 16 | ||
Repurchase of common stock | -81 | ||
Contingent payment accrued on acquisitions | 5 | ||
Other | -1 | ||
Net cash provided by (used in) financing activities | 331 | ||
Net increase (decrease) in cash and cash equivalents | 514 | ||
Cash and cash equivalents, beginning of period | 598 | ||
Cash and cash equivalents, end of period | 1,112 | ||
Supplemental cash flow information: | |||
Interest paid | 35 | ||
Income tax payments | 219 | ||
Non-cash transactions: | |||
Accrued purchases of property and equipment | 21 | ||
Retirement of common stock | 0 | ||
Contingent consideration accrued on acquisitions | 0 | ||
Changes in other comprehensive income | 1 | ||
Declared but unpaid cash dividends | $4 |
The costs listed in the following related to the factory were incurred during the period. (Hint: Record these items in one entry with one debit to manufacturing overhead and four separate credits):
Building depreciation | $580,000 |
Insurance (prepaid during 2016, now expired) | $220,000 |
Utilities (on account) | $ 80,000 |
Maintenance (paid cash) | $440,000 |
-Manufacturing overhead was applied at a rate of $20 per machine hour, and 90,000 machine hours were utilized during the year. (Hint: No need to calculate the predetermined overhead rate since it is already given to you here.)
-Miscellaneous selling costs totaling $430,000 were paid. These costs were recorded in an account called selling expenses.
-Miscellaneous general and administrative costs totaling $265,000 were paid. These costs were recorded in an account called G&A expenses.
-Goods costing $2,030,000 (per the job cost sheets) were completed and transferred out of work-in-process inventory.
-Goods were sold on account for $3,800,000.
-The goods sold in transaction 12 had a cost of $2,570,000 (per the job cost sheets).
-Payments totaling $3,300,000 from credit customers related to transaction 12 were received
Required:
Prepare T-accounts for raw materials inventory, work-in-process inventory, finished goods inventory, manufacturing overhead, and cost of goods sold. Enter the beginning balances for the inventory accounts. (Manufacturing overhead and cost of goods sold are temporary accounts and thus do not have a beginning balance.)
Prepare a journal entry for each transaction from 1 through 14 in a format like the one in Figure 2.7, and where appropriate, post each entry to the T-accounts set up in requirement a. Note that these entries reflect the flow of costs through the inventory and cost of goods sold accounts for the year, so you are only posting the dollar amounts related to the T-accounts set up in requirement a. Label each entry in the T-accounts by transaction number, include a short description (e.g., direct materials and manufacturing overhead applied), and total each T-account.
Based on the balance in the manufacturing overhead account prepared in requirement b, prepare a journal entry to close the manufacturing overhead account to cost of goods sold.
Prepare an income statement for the year ended December 31, 2016. Remember to adjust cost of goods sold for any underapplied or overapplied overhead from requirement c.
Why is cost of goods sold adjusted upward on the income statement?
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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