ACC 100 Study Guide - Midterm Guide: Accounting Equation, Retained Earnings

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ochreguinea-pig475

10 Sep 2016

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Divito inc. bought equipment on january 1, 2016, for ,000. Required: determine which costs should be capitalized (included as part of the cost of the equipment). Support your decision with reasoning (be sure to mention purchase costs or necessary to make it ready for use). Provide the account name and the reason you would record it that way. Then record all the costs in the accounting records, using the expanded accounting equation and account names (see chart, below). Must be shipped to be ready to use. The expanded accounting equation is provided for you on the next page. Note: for the chart three of the accounts have been provided for you. The remainder you will have to fill in yourself. You are running a business and you have the following information about a new long lived asset you purchased. Calculate the depreciation expense and the accumulated depreciation for the life of the asset.

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Accounting 201

Writing assignment 2

Depreciation

You work for a company that has been in business a long time.Their primary line of business is producing electronic circuitboards. The company has been reasonably profitable and has beensuccessful servicing its long term debt. However, in recent years,their net income has been declining. They are considering buying asubstantial piece of equipment which would help them be moreefficient in their production activities. The equipment will costabout $500,000 including shipping costs. In addition, they willhave to build a special platform and wiring for the machine at anestimated cost of $10,000. In addition, they will be required toput in special wiring to provide power to the machine and encloseit in a dust free environment by installing movable partitions at acost of approximately $20,000. It will have an expected life of 10years, and an expected salvage value of $5,000 at the end of 10years. The company has purchased a maintenance contract from themachineâs builder for the life of the machine at the cost of $2,000 per year.

The chief financial officer of the company has come to yourequesting advice as to how best to account for the items above.She has requested you write a memo to her, which she will reviewwith the president of the company regarding accounting for theequipment. Specifically, she has requested that you discuss andanalyze the amount that has to be capitalized vs whether any of itcan be expensed, methods of depreciation available with an analysisof the impact on the financial statements as a whole and yourrecommendation as to which method is best. Finally they want toknow whether the method of treatment for financial statementpurposes is the method they have to follow for tax purposes.

The Memo should have the following Heading:

MEMO

From:

To:

Date:

Re:

Body should be single spaced with a double space betweenparagraphs. Use headings as necessary. Develop each topic bydiscussing the applicable accounting rules then apply the facts inthe problem to arrive at a conclusion.

harlequinbeaver469

Need help with my case study for my managerial accouting class,any help will be greatly appreciated.

Part 1 15 points

Cingle Company LLC produces gadgets at one manufacturingfactory. Corporate headquarters are located at the same site.Historical cost information shows the average costs at thefollowing production levels .

Production in units	3,000	3,750	4,500
Cost of goods manufactured
Direct Materials	$ 198,000	$ 247,500	$297,000
Direct Labor	126,000	157,500	189,000
Overhead
Building depreciation-factory	5,000	5,000	5,000
Equipmentlease	4,500	4,500	4,500
Factorysupplies	1,600	1,930	2,260
Indirect Labor	5,500	5,500	5,500
Quality InspectionCosts	13,360	14,200	15,040
Selling and Administrative Expenses
Shipping	45,500	51,875	58,250
Advertisingexpense	50,000	50,000	50,000
Salaries andcommissions	137,000	155,000	173,000
Insuranceexpense	10,000	10,000	10,000
Total	$ 596,460	$ 703,005	$ 809,550

A. Identify each ofthe companyâs costs as being variable, fixed or mixed with respectto the number of units produced. Explain why you chose that costbehavior. [Hint: What happens to total cost if the cost behavior isfixed, is variable, is mixed? What happens to cost / unit if costbehavior is fixed, is variable, is mixed?] Show all computationsneeded to determine cost behavior.

NOTE: If the cost is mixed, please use thechart in part B to detail your explanation.

Use the chart below:

Cost	Fixed	Variable	Mixed	Explanation
Direct Materials		X		The total cost increases but cost/unit ($66) remainsconstant.
Direct Labor
Building depreciation-factory
Equipment lease
Factory supplies
Indirect Labor
Quality Inspection Costs
Shipping
Advertising expense
Salaries and commissions
Insurance expense

B. Using the high-lowmethod, separate each mixed cost into variable and fixed elements.State the cost formula for each mixed cost. Show all your work andcomputations.

Use the chart below:

Mixed Cost (Name)	Cost Formula (Y = a + bx form)	Supporting Computations

C. Determine the expectedtotal costs (identify each cost separately) at a production levelof 5,000 widgets. Show computations. You should arrive at a totalcost figure.

Use the chart below:

	Cost	Supporting Computations
Direct Materials
Direct Labor
Building dep-factory portion
Equipment lease
Factory supplies
Indirect Labor
Quality Inspection Costs
Shipping
Advertising expense
Salaries and commissions
Insurance expense
TOTAL COST

D. State the costequation for the total costs of the entire company in the form Y =a + bx. Using alternative one or alternative two below, show howyou determined the cost equation. (Note: you should have oneequation such that someone could determine expected total cost forany activity level within the relevant range.)

Company â Wide Cost equation:

Use the chart below (Alternative one) which shows the fixed costportion and the variable rate for each cost itemor use the high- low method (Alternative two) fordetermining the cost equation. You need to choose only onealternative.

Alternative one: (use the information and chartfrom part A and the information from part B. Input the $ amounts inappropriate columns and total the columns of the chart. Using thechart information, state the cost equation in the Y = a + bxform.)

	Fixed Cost	Variable Rate ($/unit)
Direct Materials
Direct Labor
Building dep-factory portion
Equipment lease
Factory supplies
Indirect Labor
Quality Inspection Costs
Shipping
Advertising expense
Salaries and commissions
Insurance expense
TOTAL COST

Alternativetwo: High-low method and supporting, labeledcomputations.

Part Two 20 points

Goggle Company manufactures a special virtual reality gogglethat can be used underwater. The companyâs contribution formatincome statement for last year is below:

	Total	Per Unit	% of Sales
Sales (10,000 units)	$750,000	$75	100%
Variable Expenses	450,000	45	?
Contribution Margin	300,000	$30	?
Fixed Expenses	170,000
Net Operating Income	$130,000

Goggle Company is ready to take off and expand its market share.Management has asked for several items to be analyzed in order tomake good decisions.

Calculate the companyâs contribution margin ratio and thevariable expense ratio.

Compute the companyâs break-even point in both units and insales dollars. You may use either the equation method or theformula method.

Management is predicting a 20% increase in sales next year,staying within the relevant range for the company. How much willthe companyâs net operating income increase?

Refer to the original data. Assume that management would like toearn a profit of at least $55,000. How many units will have to besold to meet this target profit?

Refer to the original data. Compute the company's margin ofsafety in both dollar and percentage form.

Compute the company's degree of operating leverage at thepresent level of sales.

Assume that through a more intense effort by the sales staff,the company's sales increase by 8% next year. By what percentagewould you expect net operating income to increase? Use the degreeof operating leverage to obtain your answer.

Verify your answer to (b) by preparing a new contribution formatincome statement showing an 8% increase in sales.

In an effort to increase sales and profits, management isconsidering the use of a higher quality virtual reality system thanthe current system. The new system would increase variable costs by$15 per unit, but management could eliminate one quality inspectorwho is paid a salary of $30,000 per year. Management believes theycan increase the selling price by $30 per unit.

Assuming that changes are made as described above, prepare aprojected contribution format income statement for next year. Showdata on a total, per unit, and percentage basis.

Compute the company's new break-even point in both units anddollars of sales. Use the formula method.

Would you recommend that the changes be made? Why or whynot?

graybear312

What are the answers to mini-practice set in McGraw Hill college accounting 15th editon?

Mini-Practice Set 1 Service Business Accounting Cycle Eliâs Consulting Services This project will give you an opportunity to apply your knowledge of accounting principles and procedures by handling all the accounting work of Eliâs Consulting Services for the month of January 2020. INTRODUCTION Assume that you are the chief accountant for Eliâs Consulting Services. During January, the business will use the same types of records and procedures that you learned about in Chapters 1 through 6. The chart of accounts for Eliâs Consulting Services has been expanded to include a few new accounts. Follow the instructions to complete the accounting records for the month of January. Eliâs Consulting Services Chart of Accounts Assets 101 Cash 111 Accounts Receivable 121 Supplies 134 Prepaid Insurance 137 Prepaid Rent 141 Equipment 142 Accumulated DepreciationâEquipment Liabilities 202 Accounts Payable Ownerâs Equity 301 Trayton Eli, Capital 302 Trayton Eli, Drawing 309 Income Summary Revenue 401 Fees Income Expenses 511 Salaries Expense 514 Utilities Expense 517 Supplies Expense 520 Rent Expense 523 Depreciation ExpenseâEquipment 526 Advertising Expense 529 Maintenance Expense 532 Telephone Expense 535 Insurance Expense INSTRUCTIONS Open the general ledger accounts and enter the balances for January 1, 2020. Obtain the necessary figures from the postclosing trial balance prepared on December 31, 2019, which appears in Figure 6.3. Analyze each transaction and record it in the general journal. Use page 3 to begin Januaryâs transactions. Post the transactions to the general ledger accounts. Prepare the Trial Balance section of the worksheet. Prepare the Adjustments section of the worksheet. Compute and record the adjustment for supplies used during the month. An inventory taken on January 31 showed supplies of $5,200 on hand. Compute and record the adjustment for expired insurance for the month. Record the adjustment for one month of expired rent of $4,000. Record the adjustment for depreciation of $183 on the old equipment for the month. The first adjustment for depreciation for the new equipment will be recorded in February. Complete the worksheet. Prepare an income statement for the month. Prepare a statement of ownerâs equity. Prepare a balance sheet using the report form.page 193 Journalize and post the adjusting entries. Journalize and post the closing entries. Prepare a postclosing trial balance. Analyze: Compare the January 31 balance sheet you prepared with the December 31 balance sheet shown in Figure 6.4. What changes occurred in total assets, liabilities, and the ownerâs ending capital? What changes occurred in the Cash and Accounts Receivable accounts? Has there been an improvement in the firmâs financial position? Why or why not? DATE TRANSACTIONS Jan. 2 Purchased supplies for $7,000; issued Check 1015. 2 Purchased a one-year insurance policy for $8,400; issued Check 1016. 7 Sold services for $20,000 in cash and $5,000 on credit during the first week of January. 12 Collected a total of $4,000 on account from credit customers during the first week of January. 12 Issued Check 1017 for $3,600 to pay for special promotional advertising to new businesses on the local radio station during the month. 13 Collected a total of $4,500 on account from credit customers during the second week of January. 14 Returned supplies that were damaged for a cash refund of $750. 15 Sold services for $20,700 in cash and $2,300 on credit during the second week of January. 20 Purchased supplies for $5,000 from Whiteâs, Inc.; received Invoice 2384 payable in 30 days. 20 Sold services for $12,500 in cash and $3,500 on credit during the third week of January. 20 Collected a total of $5,600 on account from credit customers during the third week of January. 21 Issued Check 1018 for $7,065 to pay for maintenance work on the office equipment. 22 Issued Check 1019 for $3,600 to pay for special promotional advertising to new businesses in the local newspaper. 23 Received the monthly telephone bill for $1,025 and paid it with Check 1020. 26 Collected a total of $1,600 on account from credit customers during the fourth week of January. 27 Issued Check 1021 for $3,000 to Office Plus as payment on account for Invoice 2223. 28 Sent Check 1022 for $2,675 in payment of the monthly bill for utilities. 29 Sold services for $19,000 in cash and $2,750 on credit during the fourth week of January. 31 Issued Checks 1023â1027 for $32,800 to pay the monthly salaries of the regular employees and three part-time workers. 31 Issued Check 1028 for $12,000 for personal use. 31 Issued Check 1029 for $4,150 to pay for maintenance services for the month. 31 Purchased additional equipment for $15,000 from Contemporary Equipment Company; issued Check 1030 for $10,000 and bought the rest on credit. The equipment has a five-year life and no salvage value. 31 Sold services for $7,600 in cash and $1,620 on credit on January 31.

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ACC 100 Study Guide - Midterm Guide: Accounting Equation, Retained Earnings

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