2nd EditionDavid Anderson, Margaret Ray1,042 explanations
8th EditionN. Gregory Mankiw814 explanations
8th EditionAlan J. Marcus, Alex Kane, Zvi Bodie655 explanations
1st EditionGary E. Clayton765 explanations
ACCOUNTINGThe top management of Marquis Marketing Services examines the following company accounting records at August 29, immediately before the end of the year, August 31:
$$
\begin{matrix}
\text{Total current assets.....................} & \text{\$ 324,500 }\\
\text{Noncurrent assets........................ } & \text{1,098,500 }\\
\quad & \text{\$1,423,000 }\\
\text{Total current liabilities................ } & \text{\$ 173,800}\\
\text{Noncurrent liabilities.................. } & \text{247,500 }\\
\text{Stockholders’ equity.................... } & \text{1,001,700}\\
\quad & \text{\$1,423,000}\\
\end{matrix}
$$
Suppose Marquis’s management wants to achieve a current ratio of 2. How much in current liabilities should Marquis pay off within the next two days in order to achieve its goal? Calculate Marquis’s leverage ratio and debt ratio. Evaluate the company’s debt position. Is it low, high, or about average? What other information might help you to make a decision? ACCOUNTINGUnited Apparel has the following balances in its stockholders' equity accounts on December 31, 2018: Treasury Stock, $850,000; Common Stock,$600,000; Preferred Stock, $3,600,000; Retained Earnings,$2,200,000; and Additional Paid-in Capital, $8,800,000. Prepare the stockholders' equity section of the balance sheet for United Apparel as of December 31, 2018. ACCOUNTINGTrail Runner USA guarantees tires against defects for five years or 55,000 miles, whichever comes first. Suppose Trail Runner USA can expect warranty costs during the five-year period to add up to 5% of sales. Assume that a Trail Runner USA dealer in Atlanta, Georgia, made sales of $564,000 during 2012. Trail Runner USA received cash for 40% of the sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totaled$18,000 during 2012. Record the sales, warranty expense, and warranty payments for Trail Runner USA. Post to the Estimated Warranty Payable T-account. The beginning balance was $13,000. At the end of 2012, how much in estimated warranty payable does Trail Runner USA owe to its customers? ACCOUNTINGSuperior Markets, Inc., operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the last quarter is given below:
$$
\begin{matrix}
\text{Superior Markets. Inc.}\\
\text{Income Statement}\\
\text{For the Quarter Ended September 30}\\
\text{ } & \text{Total} & \text{North Store} & \text{South Store} & \text{East Store}\\
\text{Sales} & \text{\$ 3.000.000} & \text{\$ 720.000} & \text{\$ 1.200.000} & \text{\$ 1.080.000}\\
\text{Cost of goods sold} & \text{1.657.200} & \text{403.200} & \text{660.000} & \text{594.000}\\
\text{Gross margin} & \text{1.342.800} & \text{316.800} & \text{540.000} & \text{486.000}\\
\text{Selling and administrative}\\
\text{expenses:}\\
\text{Selling expenses} & \text{817.000} & \text{231.400} & \text{315.000} & \text{270.600}\\
\text{Administrative expenses} & \text{383.000} & \text{106.000} & \text{150.900} & \text{126.100}\\
\text{Total expenses} & \text{1.200.000} & \text{337.400} & \text{465.900} & \text{396.700}\\
\text{Net operating income (loss)} & \text{\$ 142.800} & \text{\$ (20.600)} & \text{\$ 74.100} & \text{\$ 89.300}\\
\end{matrix}
$$
The North Store has consistently shows losses over the past two years. For this reason, management is giving consideration to closing the store. The company has asked you to make a recommendation as to whether the store should be closed or kept open. The following additional information is available for your use: a. The breakdown of the selling and administrative expenses is as follows:
$$
\begin{matrix}
\text{ } & \text{Total } & \text{North Store} & \text{South Store} & \text{East Store}\\
\text{Selling expenses:}\\
\text{Sales salaries} & \text{\$ 239.000} & \text{\$ 70.000} & \text{\$ 89.000} & \text{\$ 80.000}\\
\text{Direct advertising} & \text{187.000} & \text{51.000} & \text{72.000} & \text{64.000}\\
\text{General advertising} & \text{45.000} & \text{10.800} & \text{18.000} & \text{16.200}\\
\text{Store rent} & \text{300.000} & \text{85.000} & \text{120.000} & \text{95.000}\\
\text{Depreciation of store fixtures} & \text{16.000} & \text{4.600} & \text{6.000} & \text{5.400}\\
\text{Depreciation of delivery}\\
\text{equipment} & \text{9.000} & \text{3.000} & \text{3.000} & \text{3.000}\\
\text{Total selling expenses} & \text{\$ 817.000} & \text{\$ 231.400} & \text{\$ 315.000} & \text{\$ 270.600}\\
\end{matrix}
$$
$$
\begin{matrix}
\text{ } & \text{Total } & \text{North Store} & \text{South Store} & \text{East Store}\\
\text{Administrative expenses:} & \text{ } & \text{ } & \text{ } & \text{ }\\
\text{Store management salaries} & \text{\$ 70.000} & \text{\$ 21.000} & \text{\$ 30.000} & \text{\$ 19.000}\\
\text{General office salaries} & \text{50.000} & \text{12.000} & \text{20.000} & \text{18.000}\\
\text{Insurance on fixture and inventory} & \text{25.000} & \text{7.500} & \text{9.000} & \text{8.500}\\
\text{Utilities} & \text{106.000} & \text{31.000} & \text{40.000} & \text{35.000}\\
\text{Employment taxes} & \text{57.000} & \text{16.500} & \text{21.900} & \text{18.600}\\
\text{General office-other} & \text{75.000} & \text{18.000} & \text{30.000} & \text{27.000}\\
\text{Total administrative expenses} & \text{\$ 383.000} & \text{\$ 106.000} & \text{\$ 150.900} & \text{\$ 126.100}\\
\end{matrix}
$$
b. The lease on the building housing the North Store can be broken with no penalty. c. The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed. d. The general manager of the North Store would be retained and transferred to another position in the company if the North Store were closed. She would be filling a position that would otherwise be filled by hiring a new employee at a salary of $11,000 per quarter. The general manager of the North Store would be retained at her normal salary of$12.000 per quarter. All other employees in the store would be discharged. e. The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This person's salary is $4,000 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use, but does eventually become obsolete. f. The company's employment taxes are 15% of salaries. g. One-third of the insurance in the North Store is on the store's fixtures. h. The "General office salaries" mid "General office-other" relate to the overall management of Superior Markets, Inc. If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This person's compensation is$6.000 per quarter. 1. Prepare a schedule showing the change in revenues and expenses and the impact on the company's overall net operating income that would result if the North Store were closed. 2. Assuming that the store space can't be subleased, what recommendation would you make to the management of Superior Markets, Inc.? 3. Disregard requirement 2. Assume that if the North Store were closed, at least one-fourth of its sales would transfer to the East Store, due to strong customer loyalty to Superior Markets. The east Store has enough capacity to handle the increased sales. You may assume that the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in that store. What effect would these factors have on your recommendation concerning the North Store? Show all computations to support your answer.
