10-1
If an effective JIT system is implemented, Ms. Connor would not have to keep any
Exercise 10-16
a. The new inventory system is an approximate just–in-time system since it does not
eliminate all inventory.
Exercise 10-17
The CFO and controller violated the Statement of Ethical Professional Practice on two
Exercise 10-18
The process of shipping the encased speakers back to Audiomax Company by Serle
10-2
Problem 10-19
The following horizontal financial statements model is not required in the problem. It is provided to show the process of computation.
Event
Assets
Equity
Income Statement
Office
Manuf.
Common
Cash
No.
Cash
Invent.
+
Furn.*
Equip*.
Stock
+
Ret. Ear.
Rev.
–
Exp.
Net Inc.
Flow
1
78,000
+
78,000
+
–
78,000 FA
2a
(21,000)
+
21,000
+
–
(21,000) IA
2b
+
(3,000)
+
(3,000)
–
3,000
(3,000)
3a
(49,000)
+
49,000
+
–
(49,000) IA
3b
9,000
+
(9,000)
+
–
4
(12,000)
+
+
(12,000)
–
12,000
(12,000)
(12,000) OA
5
(21,000)
21,000
+
+
–
(21,000) OA
6
(26,000)
26,000
+
+
–
(26,000) OA
7a
108,000
+
+
108,000
108,000
–
108,000
108,000 OA
7b
(50,400)
+
+
(50,400)
–
50,400
(50,400)
Total
57,000
5,600
+
18,000
40,000
78,000
+
42,600
108,000
–
65,400
42,600
57,000
*Record accumulated depreciation as negative amounts under these columns.
10-3
Problem 10-19 (continued)
a.
Direct materials
$26,000
Direct labor
21,000
Manufacturing overhead
9,000*
Total product cost
56,000
Divided by
8,000
Average cost per unit
$7.00
* Depreciation of manufacturing equipment:
($49,000 − $4,000) 5 = $9,000
b. Cost of Goods Sold: $7.00 * 7,200 = $50,400
f. $57,000 + $5,600 + $18,000 + $40,000 = $120,600
10-4
Problem 10-20
Event
Assets
=
Equity
Income Statement
Manuf.
Office
Common
Cash
Flow
No.
Cash
+
Invent.
+
Equip.*
+
Furn.*
=
Stock
+
Ret. Ear.
Rev.
–
Exp.
=
Net Inc.
1.
80,000
+
+
+
=
80,000
+
–
=
80,000 FA
2.
(9,200)
+
9,200
+
+
=
+
–
=
(9,200) OA
3.
(3,800)
+
+
+
=
+
(3,800)
–
3,800
=
(3,800)
(3,800) OA
4.
(12,000)
+
12,000
+
+
=
+
–
=
(12,000) OA
5a.
(9,600)
+
+
+
9,600
=
+
–
=
(9,600) IA
5b.
+
+
+
(2,000)
=
+
(2,000)
–
2,000
=
(2,000)
6a.
(16,000)
+
+
16,000
+
=
+
–
=
(16,000) IA
6b.
+
3,000
+
(3,000)
+
=
+
–
=
7a.
38,000
+
+
+
=
+
38,000
38,000
–
=
38,000
38,000 OA
7b.
+
(18,000)
+
+
=
+
(18,000)
–
18,000
=
(18,000)
Total
67,400
+
6,200
+
13,000
+
7,600
=
80,000
+
14,200
38,000
–
23,800
=
14,200
67,400
*Record accumulated depreciation as negative amounts under these columns.
Problem 10-21
Financial Statements
Bailey Company
10-5
Income Statement
Balance Sheet
Statement of Cash Flows
Sales revenue
$7,875
Assets
Operating Activities
Cost of goods sold1
(5,400)
Cash3
$8,125
Inflow from Rev.
$7,875
Gross margin
2,475
Fin. goods inventory1
600
Outflow for Inventory1
(6,000)
Administrative expense2
(750)
Total assets
$8,725
Outflow for Admin. Exp.2
(750)
Net income
1,725
Net Outflow from Operat. Act.
1,125
Equity
Investing Activities
0
Common stock
$7,000
Financing Activities
7,000
Retained earnings
1,725
Net Change in Cash
8,125
Total equity
$8,725
Beginning Cash Balance
0
Ending Cash Balance
$8,125
1 The product costs include $2,800 for materials, $1,900 for labor, and $1,300 for overhead. Accordingly, $6,000 (i.e., $2,800 + $1,900
3 Cash balance: $7,000 – $2,800 – $1,900 – $1,300 – $350 – $400 + $7,875 = $8,125.
Problem 10-22
a.
Financial Statements
Lang Company
Income Statement
Balance Sheet
Statement of Cash Flows
Sales revenue
$95,000
Assets
Operating activities
10-6
Operating expenses1
(75,000)
Cash2
$84,000
Inflow from revenue
$95,000
Net income
$20,000
Total assets
$84,000
Outflow for expenses1
(75,000)
Net inflow from operat. Act.
20,000
Equity
Investing Activities
0
Common Stk.
$64,000
Financing Activities
64,000
Retained earnings
20,000
Net change in cash
84,000
Total equity
$84,000
Beginning cash balance
0
Ending cash balance
$84,000
Problem 10-22 (continued)
b.
Financial Statements
Lang Company
Income Statement
Balance Sheet
Statement of Cash Flows
Sales revenue
$95,000
Assets
Operating activities
Depreciation exp.1
(15,000)
Cash
$ 84,000
Inflow from rev.
$95,000
Net income
$80,000
Rental equipment
75,000
Investing activities
Accumulated dep.1
(15,000)
Outflow to purchase auto.
(75,000)
Total assets
$144,000
Financing activities
Issue stock
64,000
Equity
Net change in cash
84,000
10-7
Common Stk.
$ 64,000
Beginning cash balance
0
Retained earnings
80,000
Ending cash balance
$84,000
Total equity
$144,000
10-8
Problem 10-22 (continued)
c.
Financial Statements
Lang Company
Income Statement
Balance Sheet
Statement of Cash Flows
Sales Revenue
$95,000
Assets
Operating Activities
Cost of Goods Sold1
(33,000)
Cash
$ 84,000
Inflow from Rev.
$95,000
Gross Margin
62,000
Finished Goods Inv.
11,000
Outflow for Inventory
(34,000)
Administrative Expense2
(5,000)
Mfg. Equipment
36,000
Outflow for Admin. Exp.
(5,000)
Net Income
$57,000
Accumulated Dep.1
(10,000)
Net Inflow from Operating Act.
56,000
Total Assets
$121,000
Investing Activities
Outflow to Purchase Equip.
(36,000)
Financing Activities
Equity
Issue Stock
54,000
Common Stk.
$64,000
Net Change in Cash
84,000
Retained Earnings
57,000
Beginning Cash Balance
0
Total Equity
$121,000
Ending Cash Balance
$84,000
1 The product costs are $12,000 for materials, $22,000 for labor, and $10,000 for overhead. The overhead cost results from depreciation
2 Salaries of sales and administrative employees
d. It is highly unlikely that Lang can determine the exact cost of any particular unit of product. Materials and labor usage will differ
slightly between units of the same product. Cost averaging smoothes these differences across units of the same product.
10-9
Problem 10-23
a. Option No. 1
Financial Statements
Naoki Manufacturing Company
Income Statement
Balance Sheet
Statement of Cash Flows
Sales Revenue
$90,000
Assets
Operating Activities
Cost of Goods Sold1
(22,500)
Cash
$ 86,000
Inflow from Revenue
$90,000
Gross Margin
67,500
Finished Goods Inv.2
7,500
Outflow for Inventory
(30,000)
Gen., Sell., & Adm. Exp.
(24,000)
Total Assets
$93,500
Outflow for GS&A Expenses
(24,000)
Net Income
$43,500
Net Inflow from Operat. Act.
36,000
Investing Activities
0
Financing Activities
Equity
Issue Stock
50,000
Common Stock
$50,000
Net Change in Cash
86,000
Retained Earnings
43,500
Beginning Cash Balance
0
Total Equity
$93,500
Ending Cash Balance
$ 86,000
1$30,000 (Total product cost) 4,000 = $7.50 per unit. $7.50 x 3,000 = $22,500.
2Inventory: $7.50 x 1,000 = $7,500.
Problem 10-23 (continued)
a. Option 2
10-10
Financial Statements
Naoki Manufacturing Company
Income Statement
Balance Sheet
Statement of Cash Flows
Sales Revenue
$90,000
Assets
Operating Activities
Cost of Goods Sold1
(40,500)
Cash
$ 86,000
Inflow from Revenue
$90,000
Gross Margin
49,500
Finished Goods Inv.2
13,500
Outflow for Inventory
(54,000)
Gen., Sell., & Adm. Exp.
0
Total Assets
$99,500
Net Inflow from Operat. Act.
36,000
Net Income
$49,500
Investing Activities
0
Financing Activities
Equity
Issue Stock
50,000
Common Stk.
$50,000
Net Change in Cash
86,000
Retained Earnings
49,500
Beginning Cash Balance
0
Total Equity
$99,500
Ending Cash Balance
$ 86,000
1Total product cost: $30,000 + $24,000 = $54,000. Product cost per unit: $54,000 4,000 = $13.50
Cost of goods sold: $13.50 x 3,000 = $40,500.
2Inventory: $13.50 x 1,000 = $13,500.
10-11
Problem 10-23 (continued)
b. Option No. 2 results in financial statements that are more likely to leave a favorable
impression on investors and creditors because the net income under option No. 2 is
$6,000 greater than that under option No. 1.
Option No. 2 provides the president with a higher bonus.
Option No. 1 minimizes the amount of the company’s income tax expense.
e. Option No. 2 provides the president with a higher bonus. However, option No. 1
minimizes the amount of the company’s income tax expense. As a result, these two
options reveal a conflict of interest between the company and its president. To avoid