Problem 17-3B
Problem 17-3B
Koto Corporation began the month of June with $300,000 of current assets, a current ratio of 2.5:1, and an acid-test ratio of 1.4:1. During the month, it completed the following transactions (the company uses a perpetual inventory system).
|June |1 |Sold merchandise inventory that cost $75,000 for $120,000 cash. |
| |3 |Collected $88,000 cash on an account receivable. |
| |5 |Purchased $150,000 of merchandise inventory on credit. |
| |7 |Borrowed $100,000 cash by giving the bank a 60-day, 10% note. |
| |10 |Borrowed $120,000 cash by signing a long-term secured note. |
| |12 |Purchased machinery for $275,000 cash. |
| |15 |Declared a $1 per share cash dividend on the 80,000 shares of outstanding common stock. |
| |19 |Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account. |
| |22 |Paid $12,000 cash to settle an account payable. |
| |30 |Paid the dividend declared on June 15. |
Required
Prepare a table showing the company's (1) current ratio, (2) acid-test ratio, and (3) working capital after each transaction. Round ratios to hundredths
|Transaction |Current |Quick |Current | Current |Acid-Test |Working |
| |Assets |Assets |Liabilities |Ratio |Ratio |Capital |
|June 1 |+120,000 |+120,000 | | | | |
| | -75,000 |_______ |_______ |____ |____ |_______ |
|Bal. |345,000 |288,000 |120,000 |2.88 |2.40 |225,000 |
|June 3 |+88,000 |+88,000 | | | | |
| | -88,000 | -88,000 |_______ |____ |____ |_______ |
|Bal. |345,000 |288,000 |120,000 |2.88 |2.40 |225,000 |
|June 5 |+150,000 |_______ |+150,000 |____ |____ |_______ |
|Bal. |495,000 |288,000 |270,000 |1.83 |1.07 |225,000 |
|June 7 |+100,000 |+100,000 |+100,000 |____ |____ |_______ |
|Bal. |595,000 |388,000 |370,000 |1.61 |1.05 |225,000 |
|June 10 |+120,000 |+120,000 |_______ |____ |____ |_______ |
|Bal. |715,000 |508,000 |370,000 |1.93 |1.37 |345,000 |
|June 12 |-275,000 |-275,000 |_______ |____ |____ |_______ |
|Bal. |440,000 |233,000 |370,000 |1.19 |0.63 |70,000 |
|June 15 |_______ |_______ | +80,000 |____ |____ |_______ |
|Bal. |440,000 |233,000 |450,000 |0.98 |0.52 |-10,000 |
|June 19 | +0 | +0 |_______ |____ |____ |_______ |
|Bal. |440,000 |233,000 |450,000 |0.98 |0.52 |-10,000 |
|June 22 | -12,000 | -12,000 | -12,000 |____ |____ |_______ |
|Bal. |428,000 |221,000 |438,000 |0.98 |0.50 |-10,000 |
|June 30 | -80,000 | -80,000 | -80,000 |____ |____ |_______ |
|Bal. |$348,000 |$141,000 |$358,000 |0.97 |0.39 | -10,000 |
Exercise 18-12
For each of the following account balances for a manufacturing company, place a Ö in the appropriate column indicating that it appears on the balance sheet, the income statement, the manufacturing statement, and/or a detailed listing of factory overhead costs. Assume that the income statement shows the calculation of cost of goods sold and the manufacturing statement shows only the total amount of factory overhead. (An account balance can appear on more than one report.
| |Balance Sheet |Income Statement |Manufacturing Statement |Overhead |
|Account | | | |Table |
|Accounts receivable |( | | | |
|Computer supplies used in office | |( | | |
|Beginning finished goods inventory | |( | | |
|Beginning goods in process inventory | | |( | |
|Beginning raw materials inventory | | |( | |
|Cash |( | | | |
|Depreciation expense—Factory building | | | |( |
|Depreciation expense—Factory equipment | | | |( |
|Depreciation expense—Office building | |( | | |
|Depreciation expense—Office equipment | |( | | |
|Direct labor | | |( | |
|Ending finished goods inventory |( |( | | |
|Ending goods in process inventory |( | |( | |
|Ending raw materials inventory |( | |( | |
|Factory maintenance wages | | | |( |
|Computer supplies used in factory | | | |( |
|Income taxes | |( | | |
|Insurance on factory building | | | |( |
|Rent on office building | |( | | |
|Office supplies used | |( | | |
|Property taxes on factory building | | | |( |
|Raw materials purchases | | |( | |
|Sales | |( | | |
Problem 18-2A
Many fast food restaurants compete on lean business concepts. Match each of the following activities at a fast food restaurant with the lean business concept it strives to achieve.
|A |1|Courteous employees |a. |Total quality management (TQM) |
| |.| | | |
|B |2|Food produced to order |b. |Just-in-time (JIT) |
| |.| | | |
|C |3|New product development |c. |Continuous improvement (CI) |
| |.| | | |
|C |4. |Clean tables and floors | | |
|A |5|Orders filled within 3 minutes | | |
| |.| | | |
|A |6|Standardized food making processes | | |
| |.| | | |
|A |7|Customer satisfaction surveys | | |
| |.| | | |
|C |8|Continually changing menus | | |
| |.| | | |
|C |9|Drive-through windows | | |
| |.| | | |
|C |1|Standardized menus from location to location | | |
| |0| | | |
| |.| | | |
Exercise 19-11
Hansel Corporation has requested bids from several architects to design its new corporate headquarters. Frey Architects is one of the firms bidding on the job. Frey estimates that the job will require the following direct labor.
Frey applies overhead to jobs at 175% of direct labor cost. Frey would like to earn at least $80,000 profit on the architectural job. Based on past experience and market research, it estimates that the competition will bid between $285,000 and $350,000 for the job.
1. What is Frey's estimated cost of the architectural job?
Estimated cost to design building:
| |Estimated hours | | |
|Labor type | |Hourly rate |Total cost |
|Architects |150 |$300 |$ 45,000 |
|Staff |300 |75 |22,500 |
|Clerical |500 |20 | 10,000 |
|Total labor cost |$ 77,500 |
|Overhead @ 175% of direct labor cost | 135,625 |
|Total estimated cost |$213,125 |
2. What bid would you suggest that Frey submit?
First we need to determine an estimated selling price, based on its cost and desired profit for this job:
|Total estimated cost |$213,125 |
|Desired profit | 80,000 |
|Estimated selling price |$293,125 |
This $293,125 price may or may not be its bid. It must consider past experiences and competition. It might make the bid at the low end of what it believes the competition will bid. By bidding at about $285,000, the profit on the job will only be $71,875 ($285,000 – 213,125). While this may allow Frey to get the job, it must consider several other factors. Among them:
a. How accurate is its estimate of costs? If costs are understated, the bid may be too low. This will cause profits to be lower than anticipated. If costs are overestimated, it may bid too high and lose the job.
b. How accurate is the estimate of the competition’s probable bidding range? If it has estimated the low end too low, it may be unnecessarily underbidding. If it has estimated the low end too high, it may lose the job.
c. Is it willing to meet the expected low bid of the competition? In the example above, would it be acceptable to earn only $71,875 on this job (about a 25% gross profit ratio), rather than the normal $80,000 (about a 27% gross profit ratio)? Can it earn a better profit on another job?
Exercise 20-2
Wooden Toy Company manufactures toy trucks. Prepare journal entries to record its following production activities for January.
1. Purchased $80,000 of raw materials on credit.
2. Used $42,000 of direct materials in production.
3. Used $22,500 of indirect materials.
4. Incurred total labor cost of $95,000, which is paid in cash.
5. Used $75,000 of direct labor in production.
6. Used $20,000 of indirect labor.
7. Incurred overhead costs of $38,750 (paid in cash).
8. Applied overhead at 110% of direct labor costs.
9. Transferred completed products with a cost of $135,600 to finished goods inventory.
10. Sold $315,000 of products on credit. Their cost is $175,000.
|1. |Raw Materials Inventory |80,000 | |
| | Accounts Payable | |80,000 |
| | Purchased materials on credit. | | |
| | | | |
|2. |Goods in Process Inventory—Sanding |30,000 | |
| |Goods in Process Inventory—Painting |12,000 | |
| | Raw Materials Inventory | |42,000 |
| | Used materials in sanding and painting. | | |
| | | | |
|3. |Factory Overhead |22,500 | |
| | Raw Materials Inventory | |22,500 |
| | Used indirect materials. | | |
| | | | |
|4. |Factory Payroll |95,000 | |
| | Cash | |95,000 |
| | Incurred labor costs. | | |
| | | | |
|5. |Goods in Process Inventory—Sanding |50,000 | |
| |Goods in Process Inventory—Painting |25,000 | |
| | Factory Payroll | |75,000 |
| | Used labor in sanding and painting. | | |
| | | | |
|6. |Factory Overhead |20,000 | |
| | Factory Payroll | |20,000 |
| | Used indirect labor. | | |
| | | | |
|7. |Factory Overhead |38,750 | |
| | Cash | |38,750 |
| | Incurred overhead costs. | | |
| | | | |
|8. |Goods in Process Inventory—Sanding |62,500 | |
| |Goods in Process Inventory—Painting |18,750 | |
| | Factory Overhead | |81,250 |
| | Applied overhead: Sanding-- $50,000 | | |
| |x 125%; Painting-- $25,000 x 75%. | | |
| | | | |
|9. |Goods in Process Inventory—Painting |119,500 | |
| | Goods in Process Inv.—Sanding | |119,500 |
| | Transfer goods from sanding to painting. | | |
|10. |Finished Goods Inventory |135,600 | |
| | Goods in Process Inventory—Painting | |135,600 |
| | Transfer goods from painting to finished goods. | | |
| | | | |
|11. |Accounts Receivable |315,000 | |
| | Sales | |315,000 |
| | Sale of goods on credit. | | |
| | | | |
| |Cost of Goods Sold |175,000 | |
| | Finished Goods Inventory | |175,000 |
| | Recorded goods sold. | | |
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