Why might managers seeking a monthly bonus based on attaining a target operating income prefer the sales method of accounting for byproducts rather than the production method?

 

1. The operating cycle of a merchandising company contains
the following five activites. With merchandise acquisition as the starting
point, arrange the events in the correct order.
2.
Apr. 2 Purchased merchandise from Lyon Company under
the following terms: $4,600 price, invoice dated April 2, credit terms of 2/15,
n/60, and FOB shipping point.
3 Paid $300 for shipping charges on the
April 2 purchase.
4 Returned to Lyon Company unacceptable
merchandise that had an invoice price of $600.
17 Sent a check to Lyon Company for the
April 2 purchase, net of the discount and the returned merchandise.
18 Purchased merchandise from Frist Corp.
under the following terms: $8,500 price, invoice dated April 18, credit terms
of 2/10, n/30, and FOB destination.
21 After negotiations, received from Frist
a $1,100 allowance on the April 18 purchase.
28 Sent check to Frist paying for the April
18 purchase, net of the discount and allowance.

Prepare journal entries to record the above transactions for
a retail store.
Assume a perpetual inventory system.
3
Allied Parts was organized on May 1, 2013, and made its
first purchase of merchandise on May 3. The purchase was for 2,000 units at a
price of $10 per unit. On May 5, Allied Parts sold 1,500 of the units for $14
per unit to Baker Co. Terms of the sale were 2/10, n/60.

a. On May 7,
Baker returns 200 units because they did not fit the customer’s needs. Allied
Parts restores the units to its inventory.
b. On May 8,
Baker discovers that 300 units are damaged but are still of some use and,
therefore, keeps the units. Allied Parts sends Baker a credit memorandum for
$600 to compensate for the damage.
c. On May
15, Baker discovers that 100 units are the wrong color. Baker keeps 60 of these
units because Allied Parts sends a $120 credit memorandum to compensate. Baker
returns the remaining 40 units to Allied Parts. Allied Parts restores the 40
returned units to its inventory.
Prepare entries for Allied Parts to record the May 5 sale
and each of the above separate transactions a through c using a perpetual
inventory system.
4. The following list includes selected permanent accounts
and all of the temporary accounts from the December 31, 2013, unadjusted trial
balance of Emiko Co., a business owned by Kumi Emiko. Emiko Co. uses a
perpetual inventory system.
Additional Information:
Accrued sales salaries amount to $1,700. Prepaid selling
expenses of $3,000 have expired. A physical count of year-end merchandise
inventory shows $28,450 of goods still available.

(a) Use the
above account balances along with the additional information, prepare the
adjusting entries.
(b) Use the
above account balances along with the additional information, prepare the
closing entries.

July 1 Purchased
merchandise from Boden Company for $6,000 under credit terms of 1/15, n/30, FOB
shipping point, invoice dated July 1.
2
Sold merchandise to
Creek Co. for $900 under credit terms of 2/10, n/60, FOB shipping point,
invoice dated July 2. The merchandise had cost $500.
3
Paid $125 cash for
freight charges on the purchase of July 1.
8
Sold merchandise that
had cost $1,300 for $1,700 cash.
9
Purchased merchandise
from Leight Co. for $2,200 under credit terms of 2/15, n/60, FOB destination,
invoice dated July 9.
11 Received
a $200 credit memorandum from Leight Co. for the return of part of the
merchandise purchased on July 9.
12 Received
the balance due from Creek Co. for the invoice dated July 2, net of the
discount.
16 Paid
the balance due to Boden Company within the discount period.
19 Sold
merchandise that cost $800 to Art Co. for $1,200 under credit terms of 2/15,
n/60, FOB shipping point, invoice dated July 19.
21 Issued
a $200 credit memorandum to Art Co. for an allowance on goods sold on July 19.
24 Paid
Leight Co. the balance due after deducting the discount.
30 Received
the balance due from Art Co. for the invoice dated July 19, net of discount.
31 Sold
merchandise that cost $4,800 to Creek Co. for $7,000 under credit terms of
2/10, n/60, FOB shipping point, invoice dated July 31.
$

In the blank space beside each adjusting entry, enter the letter of the explanation A through F that most closely describes the entry.

A. To record this period’s depreciation expense.

B. To record accrued salaries expense.

C. To record this period’s use of a prepaid expense.

D. To record accrued interest revenue.

E. To record accrued interest expense.

F. To record the earning of previously unearned income.

1. Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,280 Salaries

Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,280

2. Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,208

Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,208

3. Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,180

Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,180

4. Unearned Professional Fees . . . . . . . . . . . . . . . . . . . . . . . . . 19,250

Professional Fees Earned . . . . . . . . . . . . . . . . . . . . . . . 19,250

5. Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,300

Interest Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,300

6. Depreciation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,217

Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . 38,217

 

Proration of overhead. The Ride-On-Wave Company (ROW) produces a line of non-motorized boats. ROW uses a normal-costing system and allocates manufacturing overhead using direct manufacturing labor cost. The following data are for 2017:

Inventory balances on December 31, 2017, were as follows:

1. Calculate the manufacturing overhead allocation rate.

2. Compute the amount of under- or overallocated manufacturing overhead.

3. Calculate the ending balances in work in process, finished goods, and cost of goods sold if under- or overallocated manufacturing overhead is as follows:

a. Written off to cost of goods sold

b. Prorated based on ending balances (before proration) in each of the three accounts

c. Prorated based on the overhead allocated in 2017 in the ending balances (before proration) in each of the three accounts

4. Which method would you choose? Justify your answer.

 

What recommendations would you make as far as land use and settlement patterns are concerned to lessen the danger from these tectonic hazards?