Answer:
transaction account debit credit
a. cash 16,000
common stock 16,000
b. vehicles 10,700
cash 10,700
c. supplies 400
accounts payable 400
d. accounts rec. 4,010
service revenue 4,010
e. adv. expense 160
cash 160
f. cash 1,530
accounts rec. 1,530
g. accounts payable 400
cash 400
h. dividends 530
cash 530
Two different manufacturing processes are being considered for making a new product. The first process is less capital-intensive, with fixed costs of only per year and variable costs of per unit. The second process has fixed costs of but variable costs of only per unit.
What is the break-even quantity, beyond which the second process becomes more attractive than the first?
the volume at which the second process becomes more attractive is ..... units
Answer:
Hello your question is incomplete below is the complete question
Two different manufacturing processes are being considered for making a new product. The first process is less capital-intensive, with fixed costs of only $49,700 per year and variable costs of $740 per unit. The second process has fixed costs of $391,000 but variable costs of only $160 per unit. a. What is the break-even quantity, beyond which the second process becomes more attractive than the first? the volume at which the second process becomes more attractive is ..... units
answer : At ≥ 589 units the second process becomes more attractive
Explanation:
A) Determine the breakeven quantity that makes the second process more attractive
the second process has a higher fixed cost of $391000
x = volume of sales that makes process 1 as profitable as process 2
sales = fixed cost + Total variable cost
profit = (( selling price ) * X ) - (variable cost * X ) - fixed cost
Assuming the profit made from process 1 = process 2
((selling price * X ) - ( variable cost of process 1 * X ) - fixed cost of process 1 =((selling price * X ) - ( variable cost of process 2 * X ) - fixed cost of process 2
hence ;
x = ( fixed cost of process 2 - fixed cost of process 1 ) / ((variable cost of process 1) - (variable cost of process 2 ))
= ( 391000 - 49700 ) / ( 740 - 160 )
= 588.44 units ≈ 588 units ( both process will yield same profitability
At ≥ 589 units the second process becomes more attractive
The following comparative balance sheets and income statement are available for AddieMae Inc.. Prepare a statement of cash flows for 2016 using the indirect method and analyze the statement.
Balance Sheet as of December 31 in US$ Thousands
2016 2015
Assets Cash $3,300 $1,000
Accounts receivable (net) 1,100 600
Inventory 11,200 4,300
Total Current Assets 15,600 5,900
Plant and Equipment 3,000 2,300
Less accumulated depreciation 1,300 800
Plant and equipment (net) 1,700 1,500
Long term investments 1,200 900
Total assets $18,500 $8,300
Liabilities and Equity Accounts payable $3,300 $2,500
Accrued liabilities 700 600
Income taxes payable 400 100
Total current liabilities 4,400 3,200
Long term debt 200 -
Total liabilities 4,600 3,200
Common stock 9,900 7,300
Retained earnings 4,000 (2,200)
Total liabilities and equity $18,500 $8,300
Answer:
AddieMae Inc.
Statement of Cash flows for the year ended December 31,2016
Cash flow from Operating Activities
Profit for the period 6,800
Adjustment of Working Capital items ;
Increase in Accounts receivable (2,300)
Increase in Inventory (6,900)
Increase in Accounts Payable 800
Increase in Accrued Liabilities 100
Net Cash from Operating Activities ($1,500)
Cash flows from Investing Activities
Purchase of Equipment 700
Purchase of Lon term investments 300
Net Cash from Investing Activities 1,000
Cash flow from Financing Activities
Long term debt issued 200
Issue of Common Stock 2,600
Net Cash from financing Activities 2,800
Movement in Cash and Cash equivalents 2,300
Cash and Cash Equivalents at Beginning 1,000
Cash and Cash Equivalents at the End 3,300
Explanation:
Cashflow statement shows the movement in the cash and cash equivalent balances. It only accounts for cash related transactions and events.
Note also that the Indirect method has been used for preparation of the Cashflow Statement as required.
Please select the word from the list that best fits the definition
Represents information using percentages
HELP ONLY HAVE 30 MINS
Answer:
Pie Graph
Explanation:
Trust :)
Lorenzo Company uses a job order costing system that charges overhead to jobs on the basis of direct materials cost. At year-end, the Work in Process Inventory account shows the following.
Date Explanation Debit Credit Balance
2017
Dec. 31 Direct materials cost 1,500,000 1,500,000
31 Direct labor cost 300,000 1,800,000
31 Overhead applied 600,000 2,400,000
31 To finished goods 2,350,000 50,000
1. Determine the predetermined overhead rate used (based on direct materials cost).
2. Only one job remained in work in process inventory at December 31, 2017. Its direct materials cost is $30,000. How much direct labor cost and overhead cost are assigned to this job?
Answer and Explanation:
The computation is shown below:
a. The predetermined overhead rate is
= Overhead applied ÷ direct material cost
= $600,000 ÷ $1,500,000
= 40%
2. The direct labor cost and the overhead cost assigned is
= Total cost in process - applied overhead - material cost
= $50,000 - ($30,000 × 0.40) - $30,000
= $8,000
Hence, the same would be considered
The difference between a job shadow and an internship is
Answer:
An internship is more involved
Explanation:
correct answer in A P E X
XYZ Corp. recorded service revenues of $150,000 in 2016, of which $80,000 were on credit and $70,000 were for cash. Moreover, of the $80,000 credit sales for 2016, XYZ collected $35,000 cash on those receivables before year-end 2016. The company also paid $30,000 cash for 2016 wages. Its employees also earned another $20,000 in wages for 2016, which were not yet paid at year-end 2016. How much net cash inflow did the company generate in 2016
Answer: $75,000
Explanation:
Net Cash inflow refers to the actual cash that came into the company less the cash that went out.
Net cash inflow = Cash inflow - Cash outflow
= Cash from sales + Cash from receivables collection - cash wages
= 70,000 + 35,000 - 30,000
= $75,000
Client #007 has a portfolio valued at $ 1,100,000 and wants to increase the value to $1,200,000 in 5
years. An analysis of the client's non-portfolio inflows and outflows shows the client will need $15,000
from the portfolio in one year and this amount is estimated to rise by 3% inflation per year. What is the
client's calculated return need?
Fy07
Returns
Answer:
Client #007
The client's calculated return need is:
= $
Explanation:
a) Data and Calculations:
Value of portfolio = $1,100,000
Estimated value of portfolio in 5 years = $1,200,000
Expected returns in 5 years = $100,000 ($1,200,000 = $1,100,000)
This translates to 9.1% ($100,000/$1,100,000 * 100)
Annual rate of return = 1.82% (9.1/5)
Client's need = $15,000
Client's need after considering inflation rate of 3%
The client's calculated return need = $1,100,000 * 9.1% * 1.16
= $116,116
Insurance company A and B both are life insurance companies that pay claims to a designated beneficiary upon death of an insured life. Company A insures 10,000 lives and expects to receive 525 claims this year. Company B insures 8,700 lives and expects to receive 410 claims this year. The actual number of claims for company A will range 500 < 550. The actual number of claims for company B will range from 369 < 451. Who faces the most objective risk
Answer:
Company B will faces the most objective risk
Explanation:
Company A: As Company A, insures 10,000 lives and expects to receive 525 claims this year.
They will end up saving 947,500,000 and paying 52,500,000 (525 claims*100,000), considering each claim value to be 100,000. Here goes the calculation:
10,000 x 100,000 = 1,000,000,000
1,000,000,000 - 52,500,000 = 947,500,000.
Company B: As Company B, insures 8,700 lives and expects 410 claims this year.
They will end up saving 829,000,000 and paying 41,000,000 (410 claims x 100,000), considering each claim value to be 100,000. Here goes the calculation:
8700 x 100,000 = 870,000,000
870,000,000 - 41,000,000 = 829,000,000.
Hence, the margin of profit is good for company A. Company B will have the face the risk more.
Determine whether each of the following is true or false:
1. In the short run, insurance on your property is a fixed cost.
2. In the short run, the heating of your warehouse is a fixed cost.
3. In the long run, there are more fixed costs than in the short run.
Assume that you run a concession stand at a small movie theater selling popcorn. Each day you must pay the theater management $50, so this is your fixed cost. If you are able to sell 100 boxes of popcorn each day, the variable cost per box is $0.15. Use these figures to determine average fixed cost, average variable cost, and average total cost.
Based on the following table, where do diminishing marginal returns begin to set in? Explain.
Machines Daily Output
1 300
2 700
3 1,000
4 1,200
5 1,300
6 1,300
Answer:
True
true
false
$0.50
$0.15
$0.65
3 machines. It is at this point that marginal output starts to decline
Explanation:
Martinez Corp. has the following transactions during August of the current year.
Aug. 1 Issues shares of common stock to investors in exchange for $10,930.
4 Pays insurance in advance for 3 months, $1,760.
16 Receives $810 from clients for services rendered.
27 Pays the secretary $570 salary.
Journalize the transactions.
Answer:
Aug 1
Cash $10930 Dr
Common Stock $10930 Cr
Aug 4
Prepaid Insurance $1760 Dr
Cash $1760 Cr
Aug 16
Cash $810 Dr
Service Revenue $810 Cr
Aug 27
Salary Expense $570 Dr
Cash $570 Cr
Explanation:
Aug 1
The receipt of cash in exchange of common stock is recorded as a debit to cash which is an asset and a credit to common stock which is capital
Aug 4
Prepayment of any expense is recorded as a current asset. Thus, prepaid insurance is debited as asset increases and cash is credited as cash decreases.
Aug 16
The receipt of cash in exchange of service provision is recorded as a credit to service revenue and a debit to cash
Aug 27
Payment of salary is an expense and is recorded as a debit to salary expense and a credit to cash.
A Union worker is to see an increase in pay of 2.5% per year next year. Her salary is $41,000 yr. If inflation was predicted
to be 1.9% for the upcoming year, how much more purchasing power would she have in dollars next year?
= 41,000 USD * 1+(2.5%-1.9%)
= 41,000 USD * 1.60
= 65,600
Net change 65,600 - 41,000 = $24,600
INCREASE IN HIS PURCHASING POWER!!!
OR 60% MORE IN HIS POCKET CHA-CHING!!Good luck!
#JmackTheInstructor
Net change in purchasing power next year is $24,600
Given:
Increase pay per year = 2.5% per year
Current salary = $41,000
Predicted inflation = 1.9%
Find:
Net change in purchasing power next year
Computation:
Value of money next year = 41,000[1+(2.5%-1.9%)]
Value of money next year = 41,000[1.60%]
Value of money next year = 65,600
Net change in purchasing power next year = 65,600 - 41,000
Net change in purchasing power next year = $24,600
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On January 1, 2021, American Corporation purchased 30% of the outstanding voting shares of Short Supplies common stock for $222,000 cash. On that date, Short's book value and fair value were both $740,000. The equity method is deemed appropriate for this investment. Short's net income reported on December 31, 2021, was $70,000. During 2021, Short also paid cash dividends in the amount of $19,000.
Required:
Compute the amount that would be reported for the investment on American Corporation's financial statements at December 31, 2021. what is investment amount?
Answer:
the amount that should be reported for the investment is $237,300
Explanation:
The computation of the amount that should be reported for the investment is as follows:
= Original investment + net income share - cash dividend
= $222,000 + ($70,000 × 30%) - ($19,000 × 0.30)
= $222,000 + $21,000 - $5,700
= $237,300
hence, the amount that should be reported for the investment is $237,300
More and more companies have adopted written codes of ethics. Although these codes vary greatly, they can be put into two categories: compliance-based and integrity-based. Compliance-based ethics codes emphasize preventing unlawful behavior by increasing control and penalizing wrongdoers. Integrity-based ethics codes define the organization's guiding values, create an environment that supports ethically sound behavior, and stress shared accountability.
Write the features to the correct type of Ethics Code. Match with the ideal, objective, leader type and methods.
Features of Compliance- Features of Integrity-
Based Ethics Codes Based Ethics Codes
Ideal
Obective
Leader
Methods
Avoid criminal misconduct
Education, reduced employee discretion
Enable responsible employee conduct
Lawyers
Managers
Conform to outside standards and chosen internal standards
Accountability, decision processes, controls
Conform to outside standards
Answer:
Ethics Code and Features
Ethics Codes
Features Integrity- Based Ethics Codes Based Ethics Codes
Ideal: Accountability, decision Education, reduced employee
processes, controls discretion
Objective: Enable responsible employee Avoid criminal misconduct
conduct
Leader: Managers Lawyers
Methods: Conform to outside standards Conform to outside standards
and chosen internal standards
Explanation:
Codes of ethics refer to the governing principles and expectations that regulate the behavior of individuals and organizations in the conduct of their professional responsibilities and business activities. Two broad categories have been identified for written codes of ethics. They are compliance-based (rules-based) codes and integrity-based (principles-based) codes. Rules-based or compliance-based codes emphasize prevention, while principles-based or integrity-based codes provide guidance.
Plumber Corporation acquired all of Socket Corporation's voting shares on January 1, 20X2, for $482,000. At that time, Socket reported common stock outstanding of $92,000 and retained earnings of $130,000. The book values of Socket's assets and liabilities approximated fair values, except for land, which had a book value of $92,000 and a fair value of $112,000, and buildings, which had a book value of $225,000 and a fair value of $410,000. Land and buildings are the only noncurrent assets that Socket holds.
Required:
a. Compute the amount of goodwill at the date of acquisition Goodwill
b. Prepare the consolidating entry or entries required immediately.
Answer:
Part a
$55,000
Part b
Debit : Common Stock $92,000
Debit : Retained Earnings $130,000
Debit : Revaluation Reserve ($20+ $185) $205,000
Debit : Goodwill $55,000
Credit : Investment in Subsidiary - Socket Corporation $482,000
Explanation:
Goodwill is the excess of Purchase price over the Net Assets Taken over at acquisition date.
The Net Assets taken over can be presented by the Equity of the Investee. That is the sum of Common Stock, Retained Earnings and Revaluation Reserves made to reflect fair value adjustments at acquisition date.
Note how the Revaluation Reserve ended with $205,000 following increase of $20,000 on value of land and $185,000 on value of buildings to reflect fair values.
The elimination journal needs to be prepared at consolidation to eliminate common items as reflected by Part b above.
Oliveira Industries issued $500,000 in 10% bonds with a 10-year term. If they pay interest to bondholders on a typical schedule, they could choose to pay interest on:______
A : March 31, June 30, September 31, and December 31.
B : December 31.
C : the last day of each month.
D : January 1 and July 1.
Answer:
Explanation:
January 1 and July 1
Ortega Industries manufactures 15,000 components per year. The manufacturing cost of the components was determined to be as follows: Direct materials $150,000 Direct labor 240,000 Variable manufacturing overhead 90,000 Fixed manufacturing overhead 120,000 Total $600,000 An outside supplier has offered to sell the component to Ortega for $34. Assume that the the fixed manufacturing overhead is common fixed overhead. Which means that the fixed overhead would remain the same even if the company decides to buy the component from an outside supplier. If Ortega Industries purchases the component from the outside supplier, the effect on income would be a: $30,000 increase. $30,000 decrease. $90,000 increase. $90,000 decrease.
Answer:
$30,000 decrease
Explanation:
The computation is shown below:
In the case when the production is done from Chetak's Factory
Number of Components produced 15000 15000
Total cost incurred $600,000
In the case when the production is done from outside
Number of Components produced 15,000
Total cost spend $630,000 ((15,000 × 34) + $120,000)
S the difference is
= $600,000 - $630,000
= -$30,000
Therefore the second option is correct
Sheridan Company reported the following year-end information: Beginning work in process inventory$1080000 Beginning raw materials inventory300000 Ending work in process inventory900000 Ending raw materials inventory480000 Raw materials purchased950000 Direct labor850000 Manufacturing overhead820000 Sheridan Company's cost of goods manufactured for the year is
Answer:
$1,800,000
Explanation:
Calculation for what Sheridan Company's cost of goods manufactured for the year is
First step is to calculate Direct material used
Direct material used = 300,000 + 950,000 - 480,000
Direct material used= 770,000
Now let calculate cost of goods manufactured for the year using this formula
Cost of Goods Manufactured for the year= Direct Material Used + Direct Labor + Manufacturing Overhead + Opening Work - Closing Work
Cost of Goods Manufactured for the year= 770,000 + 850,000 + 820,000 + 1,080,000 - 900,000
Cost of Goods Manufactured for the year= $1,800,000
Therefore Sheridan Company's cost of goods manufactured for the year is $1,800,000
Consider the recorded transactions below.
Debit Credit
1. Accounts Receivable 8,400 Service Revenue 8,400
2. Supplies 2,300 Accounts Payable 2,300
3. Cash 10,200 Accounts Receivable 10,200
4. Advertising Expense 1,000 Cash 1,000
5. Accounts Payable 3,700 Cash 3,700
6. Cash 1,100 Deferred Revenue 1,100
Post each transaction to T-accounts and compute the ending balance of each account. The beginning balance of each account before the transactions is:
Cash, $2,700;
Accounts Receivable, $3,500;
Supplies, $330;
Accounts Payable, $2,800;
Deferred Revenue, $230.
Service Revenue and Advertising Expense each have a beginning balance of zero.
Answer:
The ending balance of each account after the transactions is:
Cash, $9,300;
Accounts Receivable, $1,700;
Supplies, $2,630;
Accounts Payable, $1,400;
Deferred Revenue, $1,330.
Service Revenue and Advertising Expense each have an ending balance of zero.
Explanation:
Note: See the attached excel file for the T-accounts and computation of the ending balance (in red color).
The Service Revenue and Advertising Expense each have an ending balance of zero because they are to bee transferred to the income statement of the period. The income statement as an abridged version can be shown as follows:
Income statement (Abridged)
For the Period ...
Particulars $
Service Revenue 8,400
Advertising Expense (1,000)
Net income 7,400
Moath Company reports the following for the month of June.
Date Explanation Units Unit Cost Total Cost
June 1 Inventory 200 $5 $1,000
12 Purchase 400 6 2,400
23 Purchase 300 7 2,100
30 Inventory 100
Assume a sale of 440 units occurred on June 15 for a selling price of $8 and a sale of 360 units on June 27 for $9.
Required:
Calculate cost of goods available for sale.
Answer: $5,500
Explanation:
The Cost of Goods available for sale is the price of the inventory and purchases that the company intends to sell.
June 1 Inventory = $1,000
June 12 Purchase = $2,400
June 23 Purchase = $2,100
Cost of goods available for sale = 1,000 + 2,400 + 2,100
= $5,500
A speculator can choose between buying 100 shares of a stock for $40 per share and buying 1000 European call options on the stock with a strike price of $45 for $4 per option.For second alternative to give a better outcome at the option maturity,the stock price must be above:_________.A) $45B) $46C) $55D) $50
Answer:
D) $50
Explanation:
When stock price = 50
Profit on shares = (Stock price - Purchase price) * Number of shares = (50 - 40) * 100 = 1000
Profit on call option = Number of options * (stock price - exercise price - premium paid) = 1000 * (50 - 45 - 4) = 1000
Hence when stock price = 50, both the options would yield the same profit but the call option strategy would have an upper hand in profitability for every price increase above the $50 level because then the share buying strategy would yield $100 profit for every $1 price increase whereas the option buying strategy would yield $1000 profit for the same level of price increase.
Hence for the second option to yield higher profit, the stock price should be above 50.
A company has sales of $378,600 and its gross profit is $159,100. Its cost of goods sold equals:
Answer: $219500
Explanation:
The formula for the calculation of gross profit is the difference between the sales and the cost of goods sold. In this scenario, therefore, the cost of goods sold will be:
= Sales - Gross profit
= $378600 - $159100
= $219500
The cost of goods sold is $219500
what is a small business?
Small businesses are privately owned corporations, partnerships, or sole proprietorships that have fewer employees and/or less annual revenue than a regular-sized business or corporation.
Mason Company manufactures four products in a single production facility. The company uses activity-based costing. The following activities have been identified through the company's activity analysis: (a) inventory control, (b) machine setups, (c) employee training, (d) quality inspections, (e) materials orderings, (f) drilling operations, and (g) building maintenance.
Answer and Explanation:
The cost driver are as follows;
a. Inventory control - value of material
b. Machine setup - number of setups
c. Employee training - number of employees
d. Quality inspections - number of inspections
e. Material orderings - number of orders
f. Drilling operations - number of machine hours
g. Building maintenance - others
In this way it could be allocated
From the interest tables in Appendix B, determine the values of the following factors by interpolation and compare your results with those obtained from evaluating the A/P and P/A interest formulas.
1. The capital-recovery factor for 38 periods at 6.25% interest.
2. The equal-payment series present-worth factor for 85 periods at 9.25% interest.
Answer:
When compared with results obtained using Interpolation there is a variance of more than 1/3 of a point ( for both A and B )
Results obtained via A/P and P/A interest formulas
A) 0.0694
B) 10.8049
Explanation:
A) calculating The capital recovery factor for 38 periods at 6.25%
using the A/P interest formula
where ;
p = present value , i = annual interest rate, n = number of years
hence CRF ( capital recovery factor ) = 0.0694
B) Calculating the equal-payment series PWF
using the P/A interest formula
where ; p = present value , i = annual interest rate, n = number of years
hence PWF ( present worth factor ) = 10.8049
attached below is the detailed solution
When compared with results obtained using Interpolation there is a variance of more than 1/3 of a point ( for both A and B )
Marion Company issued a $350,000, zero-interest-bearing, 5-year note in exchange for land with a fair market value of $287,000 from Palma Real Estate. If the present value of the note at an appropriate rate of interest is $287,000, Palma Real Estate should record a :________.
A : premium on notes receivable.
B : gain on the sale of land.
C : premium on the sale of land.
D : discount on notes receivable.
Answer:
b
Explanation:
i have done this one before
Overhead information for Cran-Mar Company for October follows:
Total overhead incurred $30,000
Budgeted fixed overhead $7,125
Total standard overhead rate per machine-hour (MH) $4.90
Standard variable overhead rate per MH $3.00
Standard MHs allowed for the units manufactured 3,600
1. What is the standard fixed factory overhead rate per machine-hour?
2. What is the denominator activity level that was used to establish the fixed overhead application rate?
3. Prepare a diagram, to calculate the following overhead variances for October:
a. Total flexible-budget variance for factory overhead.
b. Fixed overhead production volume variance.
c. Total factory overhead cost variance.
Answer:
1. Standard Fixed factory overhead rate per machine hour = 1.9
Explanation:
1. Standard OH rate per MH $4.90
Less: Standard Variable OH rate $3.0
Fixed OH rate is 1.90
2. Denominator activity level : $3,750
Budgeted Fixed factory OH $7,125
Standard fixed overhead rate $1.90
3. a. Total flexible Budget variance:
Standard Variable Overhead (3,600 * $3.0) = $10,800
Budgeted Fixed Overhead $7,125
Total Overhead = $17,925
Actual Overheads $30,000
Variance $12,075 Unfavorable
b. Production Volume Variance :
Overheads based on Flexible budget $17,925
Standard Cost applied (3,600 hours * $4.90) $17,640
Variance $285 Favorable
c. Total factory overhead cost variance :
Actual overheads incurred $30,000
Standard cost applied to production $17,640
Variance $12,360 Unfavorable
Fatty foods are best for slowing down the rate of alcohol absorption
Answer:
Rich in heart-healthy monounsaturated fats, avocados are one of the best foods you can eat before drinking alcohol. That's because fat takes much longer to digest than protein or carbs, which can help slow the absorption of alcohol into your bloodstream.
Explanation:
Fatty foods are best for slowing down the rate of alcohol absorption as Oily, greater, and added fats are the best for reducing intoxicated since they take longer to process and linger in the belly.
What is absorption?Alcohol is absorbed and transported into the system by your body at a certain rate, or systemic absorption. Alcohol is ingested when you drink through the small and large intestines. Your blood alcohol (BAC) increases as soon as it reaches the system, and you start to feel inebriated.
Although fat digests more slowly than muscle or carbohydrates, eating fat can help delay the entrance of beer into your circulation. Alcohol is taken more slowly when food is consumed while drink it, with effervescent alcoholic beverages being absorbed more quickly. Avocados are among the best foods to eat before consuming alcohol since they are high in soul-monounsaturated fats.
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(please hurry its due soon) The American composer john cage spoke of the "all sounds" music of the future. What might that mean?
Explanation:
the famous composer known for he meant that music would be more than just about dissonance and consonance. John Kay just talkin about a revolution in music where the boundaries between noise and music would be challenged. In a way he turned out to be right as what would be considered noise in a stretch acoustic point of view or now included in musical compositions
What is the proper factor notation for calculating the present worth of a gradient series, given a gradient amount of $500, an interest rate of 2%, and the number of periods equal to 10?
a) P-$500(PIF 290, 10)
b) P-$500(GIP 296, 10)
c) P-$500(PIA 296, 10)
d) P-$500(PIG 296, 10)
Answer:
Explanation:
d) P-$500(PIG 296, 10)
Smart Watch Company reported the following income statement data for a 2-year period.
2019 2020
Sales revenue $220,000 $250,000
Cost of goods sold
Beginning inventory 32,000 44,000
Costs of goods purchased 173,000 202,000
Cost of goods available for sale 205,000 246,000
Ending inventory 44,000 52,000
Cost of goods sold 161,000 194,000
Gross profit $59,000 $56,000
Smart uses a periodic inventory system. The inventories at January 1, 2019, and December 31, 2020, are correct. However, the ending inventory at December 31, 2019, was overstated $6,000.
Required:
a. Prepare correct income statement data the 2 years.
b. What is the cumulative effect of the inventory error on total gross profit for the 2 years?
Answer and Explanation:
a. The preparation of the correct income statement is as follows:
Year 2019 2020
Sales revenue $220,000 $250,000
Cost of goods sold
Beginning inventory $32,000 $38,000
Add: Costs of goods
purchased $173,000 $202,000
Cost of goods available for sale $205,000 $240,000
Less: Ending inventory -$38,000 -$52,000
($44,000 - $6,000 )
Cost of goods sold $167,000 $188,000
Gross profit $53,000 $62,000
b. The cumulative effect is
Incorrect gross profit = $59,000 + $56,000 = $115,000
Correct gross profit = $53,000 + $62,000 = $115,000
Net effect would be zero