Refer to the financial statements of American Eagle Outfitters in Appendix B, Urban Outfitters in Appendix C, and the Industry Ratio Report in Appendix D at the end of this book.

Required:

1. What was Advertising Expense for each company for the most recent year? Where did you find the information?

2. Compute the percentage of Advertising Expense to Net Sales for the most recent year for both companies. Which company incurred the higher percentage? Show computations. Are you able to perform the same comparison for the previous two years? If so, show the computations. If not, explain why not.

3. Compare the Advertising Expense to Net Sales ratio for the most recent year computed in requirement (2) to the industry average found in the Industry Ratio Report (Appendix D). Were these two companies spending more or less than their average competitor on advertising (on a relative basis)? What does this ratio tell you about the general effectiveness of each company’s advertising strategy?

4. Both companies include a note to the financial statements explaining the accounting policy for advertising. How do the policies differ, if at all?

5. Compute each company’s net profit margin for the three years reported. What do your results suggest to you about each company over time and in comparison to each other?

6. Compare each company’s net profit margin for the most recent year to the industry average net profit margin in the Industry Ratio Report. Were these two companies performing better or worse than the average company in the industry?

Bloom Company management predicts that it will incur fixed costs of $160,000 and earn pretax income of$164,000 in the next period. Its expected contribution margin ratio is 25%. Use this information to compute the amounts of (1) total dollar sales and (2) total variable costs.

Compute the contribution margin ratio using the following data: sales, $5,000; total variable cost,$3,000.

The ISBN-10 of the sixth edition of Elementary Number Theory and Its Applications is 0-321-500Q1-8, where Q is a digit. Find the value of Q.

Bill’s Catering Company is at its accounting year-end, December 31, 2011. The following data that must be considered were developed from the company’s records and related documents:

a. During 2011, office supplies amounting to $1,200 were purchased for cash and debited in full to Supplies. At the beginning of 2011, the count of supplies on hand was$450; at December 31, 2011, the count of supplies on hand was $400.

b. On December 31, 2011, the company catered an evening gala for a local celebrity. The$7,500 bill was payable by the end of January 2012. No cash has been collected, and no journal entry has been made for this transaction.

c. On October 1, 2011, a one-year insurance premium on equipment in the amount of $1,200 was paid and debited in full to Prepaid Insurance on that date. Coverage began on November 1.

d. On December 31, 2011, repairs on one of the company’s delivery vans were completed at a cost estimate of$600; the amount has not yet been paid or recorded. The repair shop will bill Bill’s Catering at the beginning of January 2012.

e. In November 2011, Bill’s Catering signed a lease for a new retail location, providing a down payment of $2,100 for the first three months’ rent that was debited in full to Prepaid Rent. The lease began on December 1, 2011.

f. On July 1, 2011, the company purchased new refrigerated display counters at a cash cost of$18,000. Depreciation of $2,600 has not been recorded for 2011.

g. On November 1, 2011, the company loaned$4,000 to one of its employees on a one-year, 12 percent note. The principal plus interest is payable by the employee at the end of 12 months.

h. The income before any of the adjustments or income taxes was $22,400. The company’s federal income tax rate is 30 percent. ( Hint: Compute adjusted income based on ( a ) through ( g ) to determine income tax expense.)

Required:

1. Indicate whether each transaction relates to a deferred revenue, deferred expense, accrued revenue, or accrued expense.

2. Give the adjusting entry required for each transaction at December 31, 2011.

Refer to the data in the previous two exercises.

Required:

1. What are the purposes of “closing the books” at the end of the accounting period?

2. Using the adjusted balances in in the previous exercise, give the closing entry for 2011.

Josh and Kelly McKay began operations of their furniture repair shop (Furniture Refinishers, Inc.) on January 1, 2012. The annual reporting period ends December 31. The trial balance on January 1, 2013, was as follows:

$$\begin{array}{|l|c|c|} \hline \textbf { Account Titles} & \textbf { Debit } & \textbf { Credit }\\ \hline \text { Cash } & \$ 5,000 & \\ \hline \text { Accounts receivable } & 4,000 & \\ \hline \text { Supplies } & 2,000 & \\ \hline \text { Small tools } & 6,000 & \\ \hline \text { Equipment } & & \\ \hline \text { Accumulated depreciation (on equipment) } & & \\ \hline \text { Other assets (not detailed to simplify) } & 9,000 & \\ \hline \text { Accounts payable } & & \$ 7,000 \\ \hline \text { Notes payable } & & \\ \hline \text { Wages payable } & & \\ \hline \text { Interest payable } & & \\ \hline \text { Income taxes payable } & & \\ \hline \text { Unearned revenue } & & \\ \hline \text { Contributed capital (15,000 shares) } & & 15,000 \\ \hline \text { Retained earnings } & & 4,000 \\ \hline \text { Service revenue } & & \\ \hline \text { Depreciation expense } & & \\ \hline \text { Wages expense } & & \\ \hline \text { Interest expense } & & \\ \hline \text { Income tax expense } & & \\ \hline \text { Remaining expenses (not detailed to simplify) } & & \\ \hline \textbf { Totals } & \textbf { \$26,000 } & \textbf { \$26,000 } \\ \hline \end{array}$$

Transactions during 2013 follow:

a. Borrowed $20,000 cash on July 1, 2013, signing a one-year, 10 percent note payable.

b. Purchased equipment for$18,000 cash on July 1, 2013.

c. Sold 5,000 additional shares of capital stock for cash at $1 market value per share at the beginning of the year. d. Earned$70,000 in revenues for 2013, including $14,000 on credit and the rest in cash.

e. Incurred remaining expenses of$35,000 for 2013, including $7,000 on credit and the rest paid with cash.

f. Purchased additional small tools,$3,000 cash.

g. Collected accounts receivable, $8,000.

h. Paid accounts payable,$11,000.

i. Purchased $10,000 of supplies on account.

j. Received a$3,000 deposit on work to start January 15, 2014.

k. Declared and paid a cash dividend, $10,000.

Data for adjusting entries:

l. Supplies of$4,000 and small tools of $8,000 were counted on December 31, 2013 (debit Remaining Expenses).

m. Depreciation for 2013,$2,000.

n. Interest accrued on notes payable (to be computed).

o. Wages earned since the December 24 payroll but not yet paid, $3,000.

p. Income tax expense was$4,000, payable in 2014.

Required:

1. Set up T-accounts for the accounts on the trial balance and enter beginning balances.

2. Prepare journal entries for transactions ( a ) through ( k ) and post them to the T-accounts.

3. Journalize and post the adjusting entries ( l ) through ( p ).

4. Prepare an income statement (including earnings per share), statement of stockholders’ equity, balance sheet, and statement of cash flows.

5. Journalize and post the closing entry.

6. Compute the following ratios for 2013 and explain what the results suggest about the company:

a. Current ratio

b. Total asset turnover

c. Net profit margin

Refer to the financial statements of Urban Outfitters in Appendix C at the end of this book.

Required:

1. How much is in the Prepaid Expenses and Other Current Assets account at the end of the most recent year (for the year ended January 31, 2009)? Where did you find this information?

2. What did the company report for Deferred Rent and Other liabilities at January 31, 2009? Where did you find this information?

3. What is the difference between prepaid rent and deferred rent?

4. Describe in general terms what accrued liabilities are.

5. What would generate the interest income that is reported on the income statement?

6. What company accounts would not have balances on a post-closing trial balance?

7. Give the closing entry, if any, for Prepaid Expenses.

8. What is the company’s earnings per share (basic only) for the three years reported?

9. Compute the company’s net profit margin for the three years reported. What does the trend suggest to you about Urban Outfitters?

What is the purpose of recording adjusting entries?

Hannah Company’s annual accounting year ends on June 30. It is June 30, 2012, and all of the entries for the current year have been made except the following adjusting entries:

a. On March 30, 2012, Hannah paid a six-month premium for property insurance, $3,200, for coverage starting on that date. Cash was credited and Prepaid Insurance was debited for this amount.

b. On June 1, 2012, Hannah collected two months’ maintenance revenue of$450. At that date, Hannah debited Cash and credited Unearned Maintenance Revenue for $450.

c. At June 30, 2012, wages of$900 were earned by employees but not yet paid. The employees will be paid on the next payroll date, July 15, 2012.

d. Depreciation of $3,000 must be recognized on a service truck that cost$15,000 when purchased on July 1, 2011.

e. Cash of $4,200 was collected on May 1, 2012, for services to be rendered evenly over the next year beginning on May 1. Unearned Service Revenue was credited when the cash was received.

f. On February 1, 2012, the company borrowed$18,000 from a local bank and signed a 9 percent note for that amount. The principal and interest are payable on the maturity date, January 31, 2013.

g. On June 30, 2012, the company estimated that it owed $500 in property taxes on land it owned in the first half of 2012. The taxes will be paid when billed in August 2012.

h. The company earned service revenue of$2,000 on a special job that was completed June 29, 2012. Collection will be made during July 2012; no entry has been recorded.

Required:

1. Indicate whether each transaction relates to a deferred revenue, deferred expense, accrued revenue, or accrued expense.

2. Give the adjusting entry required for each transaction at June 30, 2012.

The following information is from the materials requisitions and time tickets for Job 9-1005 completed by Great Bay Boats. The requisitions are identified by code numbers starting with the letter Q, and the time tickets start with W. At the start of the year, management estimated that overhead cost would equal 110% of direct labor cost for each job. Determine the total cost on the job cost sheet for Job 9-1005.

$$\begin{matrix} \text{Date } & \text{Document} & \text{Amount}\\ \text{7/1/2017}\ldots\ldots\ldots & \text{Q-4698} & \text{\$1,250}\\ \text{7/1/2017}\ldots\ldots\ldots & \text{W-3393} & \text{600}\\ \text{7/5/2017} \ldots\ldots\ldots& \text{Q-4725} & \text{1,000}\\ \text{7/5/2017} \ldots\ldots\ldots& \text{W-3479} & \text{450}\\ \text{7/10/2017}\ldots\ldots\ldots & \text{W-3559} & \text{300}\\ \end{matrix}$$

A company applies overhead at a rate of 150% of direct labor cost. Actual overhead cost for the current period is $950,000, and direct labor cost is$600,000.

Prepare the journal entry to close over- or underapplied overhead to Cost of Goods Sold.

During the current month, a company that uses job order costing purchases $50,000 in raw materials for cash. It then uses$12,000 of raw materials indirectly as factory supplies and uses $32,000 of raw materials as direct materials. Prepare journal entries to record these three transactions.

Clemens Cars’s job cost sheet for Job A40 shows that the cost to add security features to a car was $10,500. The car was delivered to the customer, who paid$14,900 in cash for the added features. What journal entries should Clemens record for the completion and delivery of Job A40?