ACCOUNTINGInternational Network Solutions provides products and services related to remote access networking. The company has grown rapidly during its first 10 years of operations. As its segment of the industry has begun to mature, though, the fast growth of previous years has begun to slow. In fact, this year revenues and profits are roughly the same as last year. One morning, nine weeks before the close of the fiscal year, Rob Mashburn, CFO, and Jessica Lane, controller, were sharing coffee and ideas in Lane’s office. Lane: About the Board meeting Thursday. You may be right. This may be the time to suggest a share buyback program. Mashburn: To begin this year, you mean? Lane: Right! I know Barber will be lobbying to use the funds for our European expansion. She’s probably right about the best use of our funds, but we can always issue more notes next year. Right now, we need a quick fix for our EPS numbers. Mashburn: Our shareholders are accustomed to increases every year. Required: 1. How will a buyback of shares provide a “quick fix” for EPS? 2. Is the proposal ethical? 3. Who would be affected if the proposal is implemented? ACCOUNTINGDarren and Karen Greenlund are partners in a business called GreenGarden. Journals and forms for completing this problem are given in the Working Papers. GreenGarden completed the following transactions during July of the current year.
Transactions:
July 15. Received cash from partner, Darren Greenlund, as an investment, $10,000.00. Receipt No. 87.
15. Received cash of$3,000.00 and equipment valued at $8,000.00 from partner, Karen Greenlund, as an investment. Receipt No. 88.
31. Karen Greenlund, partner, withdrew merchandise for personal use,$1,000.00. Memorandum No. 61.
31. Darren Greenlund, partner, withdrew cash for personal use, $800.00. Check No. 321.
Instructions:
1. Use page 13 of a cash receipts journal. Journalize the investments on July 15.
2. Use page 19 of a cash payments journal and page 23 of a general journal. Journalize the withdrawals on July 31.
Information from GreenGarden’s worksheet and income statement for the month ended July 31 is givenbelow.
Net Income for the month ended July 31$14,600.00
Darren Greenlund, Capital July 1 balance 32,310.00
Karen Greenlund, Capital July 1 balance 28,880.00
Instructions:
3. Prepare a distribution of net income statement for Green Garden. Net income or loss is to be distributed equally to the partners.
4. Using the balances of the general ledger capital accounts, prepare an owners’ equity statement for Green-Garden. The investments made on July 15 are the only additional investments made by the partners this month. The withdrawals made on July 31 are the only withdrawals made by the partners this month.
The Greenlunds decided to liquidate GreenGarden and retire on July 31. On that date, after financial statements were prepared and closing entries were posted, the general ledger accounts had the following balances.
Cash $90,490.00
Merchandise Inventory 2,000.00
Equipment 15,000.00
Accumulated Depreciation—Equipment 10,000.00
Accounts Payable 2,500.00
Darren Greenlund, Capital 48,810.00
Karen Greenlund, Capital 46,180.00
The following transactions occurred on July 31 of the current year.
Transactions:
a. Received cash from the sale of merchandise inventory,$1,800.00. R89.
b. Received cash from the sale of equipment, $7,000.00. R90.
c. Paid cash to all creditors for amounts owed. C322.
d. Distributed balance of Loss and Gain on Realization to the partners on an equal basis. M62.
e. Distributed remaining cash to partners. C323 and C324.
Instructions:
5. Journalize the transactions. Continue on the next available line of the journals used in instructions 1 and 2. ACCOUNTINGTohono Company’s 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 20,000 units.
$$
\begin{matrix}
\text{TOHONO COMPANY Fixed Budget Report For Year Ended December 31, 2017}\\
\text{Sales}\ldots\ldots\ldots & \quad & \text{\$3,000,000}\\
\text{Cost of goods sold}\\
\text{Direct materials}\ldots\ldots\ldots & \text{\$1,200,000}\\
\text{Direct labor}\ldots\ldots\ldots & \text{260,000}\\
\text{Machinery repairs (variable cost)}\ldots\ldots\ldots & \text{57,000}\\
\text{Depreciation—Machinery (straight-line)}\ldots\ldots\ldots & \text{250,000}\\
\text{Utilities (25\\% is variable cost)}\ldots\ldots\ldots & \text{200,000}\\
\text{Plant manager salaries} \ldots\ldots\ldots & \text{140,000} & \text{2,107,000}\\
\text{Gross profit}\ldots\ldots\ldots & \quad & \text{893,000}\\
\text{Selling expenses}\\
\text{Packaging}\ldots\ldots\ldots & \text{80,000}\\
\text{Shipping}\ldots\ldots\ldots & \text{116,000}\\
\text{Sales salary (fixed annual amount)}\ldots\ldots\ldots & \text{160,000} & \text{356,000}\\
\text{General and administrative expenses}\\
\text{Advertising}\ldots\ldots\ldots & \text{81,000}\\
\text{Salaries}\ldots\ldots\ldots & \text{241,000}\\
\text{Entertainment expense}\ldots\ldots\ldots & \text{90,000} & \text{412,000}\\
\text{Income from operations}\ldots\ldots\ldots & \quad & \text{\$ 125,000}\\
\end{matrix}
$$
1. Classify all items listed in the fixed budget as variable or fixed. Also determine their amounts per unit or their amounts for the year, as appropriate. 2. Prepare flexible budgets for the company at sales volumes of 18,000 and 24,000 units. 3. The company’s business conditions are improving. One possible result is a sales volume of 28,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2017 budgeted amount of $125,000 if this level is reached without increasing capacity? 4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2017 could fall to 14,000 units. How much income (or loss) from operations would occur if sales volume falls to this level?