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Saturday, 7 January 2012


Conservatism is a desired qualitative characteristic of accounting information.
 True False

Materiality can be affected by the dollar amount of an item, the nature of the item, or both.
True False

Auditors play an important role in the resource allocation process by adding credibility to financial
statements
True False 

The primary responsibility for properly applying GAAP when communicating with investors and
creditors through financial statements lies with a firm's auditors.
True False 

Under federal securities laws, the SEC has the authority to set accounting standards in the U.S. 
True False 

A rules-based approach to standard setting stresses professional judgment as opposed to following a list of rules
True False 

The Public Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) changed the entity responsible for setting auditing standards in the United States. 
True False 

Accrual accounting attempts to measure revenues and expenses that occurred during accounting periods so they equal net operating cash flow

True False 
The primary function of financial accounting is to provide relevant financial information to parties external to business enterprises


True False 


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Friday, 6 January 2012


"Top Switch Inc. designs and manufactures switches used in telecommunications. Serious flooding throughout the state of Tennessee affected Top Switch’s facilities. Inventory was completely ruined, and the company’s computer system, including all accounting records, was destroyed. Before the unfortunate incident, recovery specialists cleaned the buildings. The company controller is very nervous and anxious to recover whatever records he can to support the insurance claim for the destroyed inventory. After consulting with the cost accountant, they decide to retrieve the previous year’s annual report for the beginning inventory numbers. In addition, they also agreed that they need first quarter cost data. The cost accountant was working on the first quarter results before the storm hit, and to his surprise, the report was still in his desk drawer. After reviewing the data , the information shows the following information: Material purchases were $ 325,000; Direct Labor was $ 220,000. Further discussions between the controller and the cost accountant revealed that sales were $ 1,350,000 and the gross margin was 30% of sales. The cost accountant also discovered, while sifting through the information, that cost of goods available for sale was $ 1,020,000 at cost. While assessing the damage, the controller determined that the prime costs were $ 545,000 up to the time of the damage and that manufacturing overhead is 65% of conversion cost. The cost accountant is not sure about all of this, but he decides to see what he can do with the information.
The beginning inventory numbers are as follows:
Raw Materials, $ 41,000
Work in Process, $ 56,000
Finished Goods, $ 35,000
Required: Determine the amount of cost in the Raw Materials, Work in Process, and Finished Goods Inventory as of the date of the storm. ( Hint: You may wish to reconstruct the various schedules and statements that would have been affected by the company’s accounts during the period.)
Avril Company makes collections on sales according to the following schedule:

30% in the month of sale
60% in the month following sale
8% in the second month following sale

The following sales are expected:

Expected Sales
January $100,000
February 120,000
March 110,000

Cash collections in March should be budgeted to be: 
A) $110,000. 
B) $110,800. 
C) $105,000. 
D) $113,000.


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Mcadams Inc. uses a job-order costing system in which any underapplied or overapplied overhead is closed to cost of goods sold at the end of the month. In April the company completed job C21F that consisted of 18,000 units of one of the company's standard products. No other jobs were in process during the month. The total manufacturing cost on job C21F's job cost sheet was $702,000. The manufacturing overhead for the month was underapplied by $10,080. During the month, 13,000 completed units from job C21F were sold. No other products were sold during the month.
The unit product cost for job C21F is closest to: (Points : 2) 
$29.00
$39.00
$54.78
$54.00 


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Dacosta Company had only one job in process on May 1. The job had been charged with $1,800 of direct materials, $6,966 of direct labor, and $9,936 of manufacturing overhead cost. The company assigns overhead cost to jobs using the predetermined overhead rate of $18.40 per direct labor-hour. During May, the activity was recorded:



Work in process inventory on May 30 contains $3,741 of direct labor cost. Raw materials consist solely of items that are classified as direct materials. 
The cost of goods manufactured for May was: (Points : 2) 
$97,110
$110,600
$98,770
$100,535


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Wayne Company's beginning and ending inventories for the month of June were as follows: 



Production data for the month follow:



Wayne applies manufacturing overhead cost to jobs based on direct labor-hours, and the predetermined rate is $5.75 per direct labor-hour. The company does not close underapplied or overapplied manufacturing overhead to Cost of Goods Sold until the end of the year. What is the amount of cost of goods manufactured? (Points : 2) 
$508,750
$502,000
$585,000
$487,750


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Mackinaw Manufacturing Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the company worked 17,000 actual direct labor-hours and incurred $145,000 of actual manufacturing overhead cost. They had estimated at the beginning of the year that 16,000 direct labor-hours would be worked and $144,000 of manufacturing overhead costs incurred. The company had calculated a predetermined overhead rate of $9 per direct labor-hour. The company's manufacturing overhead for the year was: (Points : 2) 
 overapplied by $8,000
underapplied by $8,000
overapplied by $1,000
underapplied by $1,000
Washtenaw Corporation uses a job-order costing system. The following data are for last year: 



Washtenaw applies overhead using a predetermined rate based on direct labor-hours. What amount of overhead was applied to jobs last year? (Points : 2) 
$39,050
$42,600
$35,750
$36,960


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14. Reamer Company uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for next year: 



Reamer estimates that 500 direct labor-hours and 1,000 machine-hours will be worked during the year. The predetermined overhead rate per hour will be: (Points : 2) 
$6.80
$6.00
$3.00
$3.40


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Woodman Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Estimated and actual data for direct labor and manufacturing overhead for last year are as follows: 

 The manufacturing overhead for Woodman Company for last year was: (Points : 2) 
overapplied by $20,000
overapplied by $40,000
underapplied by $20,000
underapplied by $40,000


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Monday, 2 January 2012

Using data from our fictitious Company, MT 217 (from Unit 3), We will calculate the expect value of its stock using the Constant Growth Model (page 114): Po = D1/(r - g) To do that we will have to estimate the vales of r, g, and D1. To estimate the value of r we will use the Capital Asset Pricing Model: CAPM = Rf + Beta(Rm - Rf) Where: Risk Free Rate = Rf = 3.5% Market Return = Rm = 12% Beta of BA 217 Corp. = .85 Question 1: Calculate "r". Next we estimate the value of "g" using the average growth rate of past dividends. Assume 6 years ago MT 217 paid a dividend of $1.20 and this year they paid a dividend of $1.55, using the Excel RATE formula calculate the average growth rate it took for the dividend to the current level in the period of time. Question 2: Calculate "g". Next we estimate the value of D1, the dividend next year as required by the Constant Growth Model. D1 = Do(1 + g), where Do = the dividend today, $1.55 Question 3: Calculate "D1". Using your solutions estimate the value of MT 217 Corporation's stock using the Constant Growth Model. Po = D1/(r - g) Question 4: Calculate the estimated value or Price Today of MT 217 = "Po". Finally comment on this question. If the actual market value was BELOW your estimated value of MT217, and you were highly confident in your assumptions, what action might you take?

Using data from our fictitious Company, MT 217 (from Unit 3), We will calculate the expect value of its stock using the Constant Growth Model (page 114): Po = D1/(r - g) 

To do that we will have to estimate the vales of r, g, and D1.

To estimate the value of r we will use the Capital Asset Pricing Model:

CAPM = Rf + Beta(Rm - Rf) 

Where:

Risk Free Rate = Rf = 3.5%

Market Return = Rm = 12%

Beta of BA 217 Corp. = .85

Question 1: Calculate "r".

Next we estimate the value of "g" using the average growth rate of past dividends.

Assume 6 years ago MT 217 paid a dividend of $1.20 and this year they paid a dividend of $1.55, using the Excel RATE formula calculate the average growth rate it took for the dividend to the current level in the period of time.

Question 2: Calculate "g".

Next we estimate the value of D1, the dividend next year as required by the Constant Growth Model.

D1 = Do(1 + g), where Do = the dividend today, $1.55

Question 3: Calculate "D1".

Using your solutions estimate the value of MT 217 Corporation's stock using the Constant Growth Model.

Po = D1/(r - g) 

Question 4: Calculate the estimated value or Price Today of MT 217 = "Po".

Finally comment on this question. If the actual market value was BELOW your estimated value of MT217, and you were highly confident in your assumptions, what action might you take?


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Jesse Company has obtained the following data about a possible planned investment: Cost $300,000 Terminal salvage value in 10 years 7,225.00 Additional annual revenues for 10 years $250,000 Additional annual cash expenses for 10 years $200,000 Estimated useful life in years 10 Minimum desired rate of return 10% Present value of ordinary annuity, 10%, 10 periods 6.1446 Present value of one, 10%, 10 periods 0.3855 Income tax rate 40% The company uses the straight-line depreciation method for taxes. A) Compute the net present value of the investment. B) Compute the net present value of the investment if the terminal salvage value is estimated to be $50,000 in 10 years.

Jesse Company has obtained the following data about a possible planned investment: 

Cost $300,000 
Terminal salvage value in 10 years 7,225.00
Additional annual revenues for 10 years $250,000 
Additional annual cash expenses for 10 years $200,000 
Estimated useful life in years 10
Minimum desired rate of return 10%
Present value of ordinary annuity, 10%, 10 periods 6.1446
Present value of one, 10%, 10 periods 0.3855
Income tax rate 40%
The company uses the straight-line depreciation method for taxes.

A) Compute the net present value of the investment.

B) Compute the net present value of the investment if the terminal salvage value is estimated to be $50,000 in 10 years.




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Clark Paints: The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the paint cans instead of purchasing them. The equipment needed would cost $200,000, with a disposal value of $40,000, and it would be able to produce 5,500,000 cans over the life of the machinery. The production department estimates that approximately 1,100,000 cans would be needed for each of the next five years. The company would hire three new employees. These three individuals would be full-time employees working 2,000 hours per year and earning $12.00 per hour. They would also receive the same benefits as other production employees, 18% of wages, in addition to $2,500 of health benefits. It is estimated that the raw materials will cost 25¢ per can and that other variable costs would be 5¢ per can. Since there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted. It is expected that cans would cost 45¢ each if purchased from the current supplier. The company's minimum rate of return (hurdle rate) has been determined to be 12% for all new projects, and the current tax rate of 35% is anticipated to remain unchanged. The pricing for a gallon of paint, as well as the number of units sold, will not be affected by this decision. The unit-of-production depreciation method would be used if the new equipment is purchased. Required: 1. Based on the above information and using Excel, calculate the following items for this proposed equipment purchase: o Annual cash flows over the expected life of the equipment o Payback period o Annual rate of return o Net present value o Internal rate of return 2. Would you recommend the acceptance of this proposal? Why or why not? Prepare a short double-spaced Word paper elaborating and supporting your answer

Clark Paints: The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the paint cans instead of purchasing them. The equipment needed would cost $200,000, with a disposal value of $40,000, and it would be able to produce 5,500,000 cans over the life of the machinery. The production department estimates that approximately 1,100,000 cans would be needed for each of the next five years.

The company would hire three new employees. These three individuals would be full-time employees working 2,000 hours per year and earning $12.00 per hour. They would also receive the same benefits as other production employees, 18% of wages, in addition to $2,500 of health benefits.

It is estimated that the raw materials will cost 25¢ per can and that other variable costs would be 5¢ per can. Since there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted.

It is expected that cans would cost 45¢ each if purchased from the current supplier. The company's minimum rate of return (hurdle rate) has been determined to be 12% for all new projects, and the current tax rate of 35% is anticipated to remain unchanged. The pricing for a gallon of paint, as well as the number of units sold, will not be affected by this decision. The unit-of-production depreciation method would be used if the new equipment is purchased.

Required: 
1. Based on the above information and using Excel, calculate the following items for this proposed equipment purchase:
o Annual cash flows over the expected life of the equipment
o Payback period 
o Annual rate of return
o Net present value
o Internal rate of return 

2. Would you recommend the acceptance of this proposal? Why or why not? Prepare a short double-spaced Word paper elaborating and supporting your answer


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Compute the price of a company’s stock that just paid a dividend of $3.30 (that is, D0 = 3.30), assuming that the growth rate in dividends is expected to be 6.5% per year forever and that the required rate of return on this stock is 15.25%. . If shares of common stock of the Samson Co. offer an expected total return of 12% and if the growth rate in future dividends of the stock are expected to be 8% per year forever, what is the stock’s dividend yield (i.e., D1/P0)?


Compute the price of a company’s stock that just paid a dividend of $3.30 (that is, D0 = 3.30), assuming that the growth rate in dividends is expected to be 6.5% per year forever and that the required rate of return on this stock is 15.25%. .
If shares of common stock of the Samson Co. offer an expected total return of 12% and if the growth rate in future dividends of the stock are expected to be 8% per year forever, what is the stock’s dividend yield (i.e., D1/P0)?


The Oxford Company has budgeted sales revenues as follows:

The Oxford Company has budgeted sales revenues as follows:

July August September
Credit sales $30,000 $24,000 $18,000
Cash sales 18,000 51,000 39,000
Total sales $48,000 $75,000 $57,000

Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month.

Purchases of inventory are all on credit and 50% is paid in the month of purchase and 50% in the month following purchase. Budgeted inventory purchases are $65,000 in July, $45,000 in August, and $21,000 in September.

Other budgeted cash receipts: (a) sale of plant assets for $12,350 in August, and (b) sale of new common stock for $16,850 in September. Other budgeted cash disbursements: (a) operating expenses of $6,750 each month, (b) selling and administrative expenses of $12,500 each month, (c) dividends of $19,000 will be paid in August, and (d) purchase of equipment for $6,000 cash in September. 

The company has a cash balance of $10,000 at the beginning of August and wishes to maintain a minimum cash balance of $10,000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 12%. Assume that all borrowing is done on the first day of the month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available. Also assume that there is no outstanding financing as of August 1.

Use this information to prepare a Cash Budget for the months of August and September.


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Weir Trukin Incorporated is considering the purchase of new production machine for $100,000. The purchase of this new machine will result in an increase in earnings before interest and taxes of $25,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost $5,000 after tax.
An increase in inventory of $25,000 is required due to the increased efficiency of this new machine.
This machine has an expected life of 10 years, after which it will have no salvage value.
Finally, to purchase the new machine, it appears that the firm would have to borrow $80,000 at 10% interest from its local bank, resulting in additional interest payments of $80,000 per year.
Assume simplified straight-line depreciation and that this machine is being depreciated down to zero, a 34% marginal tax rate, and a required rate of return of 12%.

1. What is the initial outlay associated with this project?
2. What are the annual after-tax cash flows associated with this project, for years1 through 9?
3. What is the terminal cash flow in year 10?
4. Should this machine be purchased?

2.) 1. The manufacturing department of Holmes Manufacturing Company must choose from six capital budgeting proposals outlined below.
The department is subject to capital rationing and it has a budget ceiling of 1,000,000. The company’s cost of capital is 15%. Using the criteria of IRR and NPV below, which projects should the department choose?
Project Initial Cost IRR NPV
1 $200,000 19% $100,000
2 $400,000 17% 20,000
3 $250,000 16% 60,000
4 $200,000 12% -5,000
5 $150,000 20% 50,000
6 $400,000 15% 150,000




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Taylor Incorporated is a manufacturing and sales organization specializing in speed and distance measurement devices—not all of which are manufactured by Taylor Incorporated. One particular distance measurement device produced by Parker Altibelli Industries has just been put in the Taylor Incorporated inventory. The Taylor Incorporated management team is extremely enthusiastic about the sales of the new device to law enforcement agencies, insurance companies, and commercial and private trucking companies. The device projects a laser beam between an electronic reflecting object and the laser gun itself and provides an instantaneous distance reading that is accurate to one thousandth of an inch. Accident investigators are raving about the device because of the amount of time saved in gathering distances at the scene of an accident and because of the enhanced accuracy. An example of the type of measurement often taken is from the point of impact to the final stopping point of the vehicle. SPECIFIC SALES AND COST DATA Sales are estimated to be 4,500 units annually at $3,000 each. The cost of each unit for Taylor Incorporated is $1,200. Inventory carrying cost is 5% of the cost value of the device. Order placement cost is $60. THE CHALLENGE You have just been appointed the new inventory manager for Taylor Incorporated. The president of Taylor Incorporated has asked you to explain to him the basic principles of inventory management. You must also compute the economic order quantity in units for the new distance measurement device he is interested in purchasing. The president has held the position for approximately two years, but he comes from a legal background and has very little knowledge of the supply chain and operations-management field. The initial comments of the president indicate that his concept of inventory includes only finished goods being held for sale. Note: The formula for computing the number of units is provided. EQQ = the square root of 2PD CV P = The ordering cost (dollars per order) D = Annual demand of the product (number of units) C = Annual inventory carrying cost (as a percentage of product cost or value) V = Average cost or value of one unit of inventory 1. Identify the number of units to purchase for the new distance measurement device based on the economic order quantity. 2. Identify the number of orders per year that must be made to take advantage of the economic order quantity.

Taylor Incorporated is a manufacturing and sales organization specializing in speed and distance measurement devices—not all of which are manufactured by Taylor Incorporated. One particular distance measurement device produced by Parker Altibelli Industries has just been put in the Taylor Incorporated inventory. The Taylor Incorporated management team is extremely enthusiastic about the sales of the new device to law enforcement agencies, insurance companies, and commercial and private trucking companies. The device projects a laser beam between an electronic reflecting object and the laser gun itself and provides an instantaneous distance reading that is accurate to one thousandth of an inch. Accident investigators are raving about the device because of the amount of time saved in gathering distances at the scene of an accident and because of the enhanced accuracy. An example of the type of measurement often taken is from the point of impact to the final stopping point of the vehicle.
SPECIFIC SALES AND COST DATA
Sales are estimated to be 4,500 units annually at $3,000 each. The cost of each unit for Taylor Incorporated is $1,200. Inventory carrying cost is 5% of the cost value of the device. Order placement cost is $60.
THE CHALLENGE
You have just been appointed the new inventory manager for Taylor Incorporated. The president of Taylor Incorporated has asked you to explain to him the basic principles of inventory management. You must also compute the economic order quantity in units for the new distance measurement device he is interested in purchasing. 

The president has held the position for approximately two years, but he comes from a legal background and has very little knowledge of the supply chain and operations-management field. The initial comments of the president indicate that his concept of inventory includes only finished goods being held for sale.

Note: The formula for computing the number of units is provided.

EQQ = the square root of 2PD 
CV

P = The ordering cost (dollars per order)
D = Annual demand of the product (number of units)
C = Annual inventory carrying cost (as a percentage of product cost or value)
V = Average cost or value of one unit of inventory


1. Identify the number of units to purchase for the new distance measurement device based on the economic order quantity.

2. Identify the number of orders per year that must be made to take advantage of the economic order quantity.


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Key Company account information for 2010 is as follows: 12.31.10 1.1.10
Sales $24,859
Cost of Goods Sold 18,026
Depreciation Expense 270
Other Expenses 4,801
Income Tax Expense 539
Cash 30 28
Receivables 804 626
Merchandise 3,484 3,264
Equipment (net) 4,225 3,825
Payables 1,543 1,373
Accrued Debt 939 848
Long Term Debt 450 445
Common Stock 675 575
Retained Earnings 4,936 4,502

No equipment was sold during the year, and no principal payments paid on long term debt.
What is the amount of cash provided by or used for operations?
What is the amount of cash provided by or used for investments?
What is the amount of cash used to pay cash dividends?
What is the amount of cash provided by or used for financing?

2.
. Dahlia Manufacturing Company reported $4,000,000 of sales during the month and incurred variable expenses totaling $2,800,000 and fixed expenses of $720,000. A total of 80,000 units were produced and sold last month. The company has no beginning or ending inventories.

What is the company's break-even point in sales dollars?
What is the company's margin of safety? 
What is the company's degree of operating leverage?
3.
Nilla Cookie Company bakes cookies using a recipe applying raw materials evenly during the production process, and uses the weighted average method to calculate costs of production.
boxes of cookies produced production costs
Beginning work in progress (50% complete) 10,000 $14,000
Started during January, 2009 4,000,000 11,998,000
Ending work in progress (20% complete) 20,000
How many units were completed in January? 
How many equivalent units were completed in January?
What is the cost per equivalent unit? 
What is the cost of the ending work in progress?
What is the cost of goods manufactured?
4.
Denton Manufacturing overhead costs and units produced during the first half of 2009:
Month # of units Total Overhead Costs
January 5,200 $24,800
February 6,600 25,500
March 4,900 24,500
April 5,600 24,900
May 6,100 25,490
June 6,200 25,100
Estimate the amount of variable overhead cost per unit produced.
Estimate the amount of fixed overhead per month. 
Estimate the total factory overhead for a month in which 6,000 units are produced.
5.
. Ace Company's 2009 GAAP compliant financial statement reports sales of 1,000 units for $500 each, gross profit of $300,000, and net income of $100,000. 1,200 units were produced during the year, and fixed manufacturing costs totaled $60,000. All period costs are fixed.

What was the absorption cost per unit? 
What was the variable cost per unit sold? 
What was the fixed manufacturing overhead per unit produced? 
What was the variable cost net income?

7. Jo Company manufactures custom made boats. On 1.1.09, Jo estimated total 2009 factory overhead of $4,000,000 and total 2009 direct labor hours of 200,000. During 2009, Jo produced and sold a boat, the MaryAnne, which required $400,000 of materials and 3,000 hours of direct labor costing $10 per hour. During 2009, Jo's total direct labor hours totaled 180,000 and actual total factory overhead totaled $3,800,000.
What is the prime cost of the MaryAnne?
What is the normal cost of the MaryAnne? 
What is the actual cost of the MaryAnne?

Guillermo's Furniture Store Scenario


Guillermo's Furniture Store Scenario
Setup Information
0.06
Peso? (1=Yes)
1.00
10.814 Mexican Pesos = 1.000 US Dollars
Income Information-Current Standards
Current
Hi-Tech
Broker
Production
Current Production = Sales Forecast
Mid-Grade
2,532.00
3,798.00
3,798.00
High-End
506.00
759.00
759.00
Direct Materials ($)/Unit
Mid-Grade
140.00
140.00
There are no material costs for brokered units
High-End
250.00
250.00
250.00
Direct Labor ($/HR)/Unit
15.00
40.00
40.00
Labor Time (Hrs)/Unit
Mid-Grade
20.00
4.00
There are no labor times for brokered units and production times are 20% of original times
High-End
30.00
4.00
4.00
Direct Cost/Unit
Mid-Grade
440.00
300.00
360.00
High-End
700.00
410.00
410.00
Price/Unit
Mid-Grade
509.00
459.00
459.00
High-End
879.00
789.00
789.00
Plant Overhead/Yr
Salaries
50,000
95,000
95,000
Utilities
9,000
27,000
4,497
Benefits
103,730
82,412
21,644
Insurance
3,000
15,000
15,000
Property Taxes
975
3,900
3,900
Depreciation
50,000
466,667
466,667
Supplies
6,000
6,000
6,000
Income Tax Expense
17,882
82,137
21,401
265,282
891,543
663,663
Net Margins
222,705
695,979
612,708
Overhead
42,577
195,564
50,955
Net Income before taxes


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Because Aqua Elite, Inc. is a new startup business, the beginning balances in all the general ledger accounts are zero to start. n The length of the accounting periods are three months using a fiscal calendar year. (A fiscal calendar is on a yearly basis other than a calendar year—January 1st to December 31st. For example, a fiscal calendar year can be May 1, 2009, through April 30, 2010). Therefore, posting to the general ledger, adjustments and closing entries are made on a fiscal quarterly basis. n Accounts Receivable and Accounts Payable subsidiary ledgers aren’t being used. Any references to invoicing, receipts, or payments “on account” assume changes to the running balance in the Accounts Receivable and Accounts Payable general ledger accounts. n Payroll calculations aren’t necessary. Assume the salary is the gross pay with no deductions taken. Therefore, the net pay is the same as the gross pay, requiring a simplified journal entry to record the expense. n Use the information in the Chart of Accounts that’s provided after the Requirements section below. Add general ledger accounts if necessary. Requirements 1. Journalize the transactions. Omit explanations. 2. Post the transactions to the general ledger, creating new ledger accounts as necessary. Calculate the new general ledger account balances. 3. Prepare the unadjusted trial balance for Aqua Elite, Inc., at the end of July. 4. Journalize and post the adjusting entries for July based on the following adjustment information: a. Record the expired rent. b. Supplies on hand, $350. c. Depreciation: $400 equipment, $210 furniture, $650 vehicles. d. Services performed but unbilled, $1,900. e. Accrued salaries, $675. f. Unearned service revenue earned as of July 31, $800. 5. Prepare an adjusted trial balance for Aqua Elite, Inc., at the end of July. 6. Prepare the Income Statement, Statement of Retained AND MORE DATA. NEEDED Balance Sheet Income Statement Statement of Retained Earnings Post-Closing Trial Balance


Because Aqua Elite, Inc. is a new startup business, the
beginning balances in all the general ledger accounts are
zero to start.
n The length of the accounting periods are three months
using a fiscal calendar year. (A fiscal calendar is on a
yearly basis other than a calendar year—January 1st to
December 31st. For example, a fiscal calendar year can
be May 1, 2009, through April 30, 2010). Therefore,
posting to the general ledger, adjustments and closing
entries are made on a fiscal quarterly basis.
n Accounts Receivable and Accounts Payable subsidiary
ledgers aren’t being used. Any references to invoicing,
receipts, or payments “on account” assume changes to
the running balance in the Accounts Receivable and
Accounts Payable general ledger accounts.
n Payroll calculations aren’t necessary. Assume the salary
is the gross pay with no deductions taken. Therefore, the
net pay is the same as the gross pay, requiring a simplified journal entry to record the expense.
n Use the information in the Chart of Accounts that’s provided after the Requirements section below. Add general
ledger accounts if necessary.
Requirements
1. Journalize the transactions. Omit explanations.
2. Post the transactions to the general ledger, creating new
ledger accounts as necessary. Calculate the new general
ledger account balances.
3. Prepare the unadjusted trial balance for Aqua Elite, Inc.,
at the end of July.
4. Journalize and post the adjusting entries for July based
on the following adjustment information:
a. Record the expired rent.
b. Supplies on hand, $350.
c. Depreciation: $400 equipment, $210 furniture, $650
vehicles.
d. Services performed but unbilled, $1,900.
e. Accrued salaries, $675.
f. Unearned service revenue earned as of July 31, $800.
5. Prepare an adjusted trial balance for Aqua Elite, Inc., at
the end of July.
6. Prepare the Income Statement, Statement of Retained

AND MORE DATA. 

NEEDED
Balance Sheet
Income Statement
Statement of Retained Earnings
Post-Closing Trial Balance