Prepare a Table Showing the Company's (1) Current Ratio, (2) Acid-Test Ratio, and (3) Working

Problem 17-3B

Koto Corporation began the month of June with $300,000 of current assets, a current ratio of 2.5:1, and an acid-test ratio of 1.4:1. During the month, it completed the following transactions (the company uses a perpetual inventory system).

June1 Sold merchandise inventory that cost $75,000 for $120,000 cash. 3 Collected $88,000 cash on an account receivable. 5 Purchased $150,000 of merchandise inventory on credit. 7 Borrowed $100,000 cash by giving the bank a 60-day, 10% note. 10Borrowed $120,000 cash by signing a long-term secured note. 12Purchased machinery for $275,000 cash. 15Declared a $1 per share cash dividend on the 80,000 shares of outstanding common stock. 19Wrote off a $5,000 bad debt against the Allowance for Doubtful Accounts account. 22Paid $12,000 cash to settle an account payable. 30Paid the dividend declared on June 15.

Required

Prepare a table showing the company's (1) current ratio, (2) acid-test ratio, and (3) working capital after each transaction. Round ratios to hundredths Trans- Current Quick Current Current Acid-Test Working action Assets Assets Liabilities Ratio Ratio Capital Beginning* $300,000 $168,000 $120,000 2.50 1.40 $180,000 June 1 +120,000 +120,000 -75,000 ______Bal. 345,000 288,000 120,000 2.88 2.40 225,000 June 3 +88,000 +88,000 -88,000 -88,000 ______Bal. 345,000 288,000 120,000 2.88 2.40 225,000 June 5 +150,000 ______+150,000 ______Bal. 495,000 288,000 270,000 1.83 1.07 225,000 June 7 +100,000 +100,000 +100,000 ______Bal. 595,000 388,000 370,000 1.61 1.05 225,000 June 10 +120,000 +120,000 ______Bal. 715,000 508,000 370,000 1.93 1.37 345,000 June 12 -275,000 -275,000 ______Bal. 440,000 233,000 370,000 1.19 0.63 70,000 June 15 ______+80,000 ______Bal. 440,000 233,000 450,000 0.98 0.52 -10,000 June 19 +0 +0 ______Bal. 440,000 233,000 450,000 0.98 0.52 -10,000 June 22 -12,000 -12,000 -12,000 ______Bal. 428,000 221,000 438,000 0.98 0.50 -10,000 June 30 -80,000 -80,000 -80,000 ______Bal. $348,000 $141,000 $358,000 0.97 0.39 -10,000

Exercise 18-12

For each of the following account balances for a manufacturing company, place a Ö in the appropriate column indicating that it appears on the balance sheet, the income statement, the manufacturing statement, and/or a detailed listing of factory overhead costs. Assume that the income statement shows the calculation of cost of goods sold and the manufacturing statement shows only the total amount of factory overhead. (An account balance can appear on more than one report. Balance Income Manufacturing Overhead Account Sheet Statement Statement Table Accounts receivable......  Computer supplies used in  office...... Beginning finished goods  inventory...... Beginning goods in process  inventory...... Beginning raw materials  inventory...... Cash......  Depreciation expense—  Factory building...... Depreciation expense—  Factory equipment...... Depreciation expense—Office  building...... Depreciation expense—Office  equipment...... Direct labor......  Ending finished goods   inventory...... Ending goods in process   inventory...... Ending raw materials   inventory...... Factory maintenance wages....  Computer supplies used in  factory...... Income taxes......  Insurance on factory building. .  Rent on office building......  Office supplies used......  Property taxes on factory  building...... Raw materials purchases......  Sales......  Problem 18-2A

Many fast food restaurants compete on lean business concepts. Match each of the following activities at a fast food restaurant with the lean business concept it strives to achieve.

1Courteous employees a.Total quality management A . (TQM) 2Food produced to order b.Just-in-time (JIT) B . 3New product development c.Continuous improvement C . (CI) C 4. Clean tables and floors 5Orders filled within 3 minutes A . 6Standardized food making processes A . 7Customer satisfaction surveys A . 8Continually changing menus C . 9Drive-through windows C . 1Standardized menus from location to C 0location .

Exercise 19-11

Hansel Corporation has requested bids from several architects to design its new corporate headquarters. Frey Architects is one of the firms bidding on the job. Frey estimates that the job will require the following direct labor.

Frey applies overhead to jobs at 175% of direct labor cost. Frey would like to earn at least $80,000 profit on the architectural job. Based on past experience and market research, it estimates that the competition will bid between $285,000 and $350,000 for the job.

1. What is Frey's estimated cost of the architectural job? Estimated cost to design building:

Estimated Labor type hours Hourly rate Total cost Architects...... 150 $300 $ 45,000 Staff...... 300 75 22,500 Clerical...... 500 20 10,000 Total labor cost...... $ 77,500 Overhead @ 175% of direct labor cost...... 135,625 Total estimated cost...... $213,125

2. What bid would you suggest that Frey submit?

First we need to determine an estimated selling price, based on its cost and desired profit for this job:

Total estimated cost...... $213,125 Desired profit...... 80,000 Estimated selling price...... $293,125

This $293,125 price may or may not be its bid. It must consider past experiences and competition. It might make the bid at the low end of what it believes the competition will bid. By bidding at about $285,000, the profit on the job will only be $71,875 ($285,000 – 213,125). While this may allow Frey to get the job, it must consider several other factors. Among them: a. How accurate is its estimate of costs? If costs are understated, the bid may be too low. This will cause profits to be lower than anticipated. If costs are overestimated, it may bid too high and lose the job. b. How accurate is the estimate of the competition’s probable bidding range? If it has estimated the low end too low, it may be unnecessarily underbidding. If it has estimated the low end too high, it may lose the job. c. Is it willing to meet the expected low bid of the competition? In the example above, would it be acceptable to earn only $71,875 on this job (about a 25% gross profit ratio), rather than the normal $80,000 (about a 27% gross profit ratio)? Can it earn a better profit on another job? Exercise 20-2

Wooden Toy Company manufactures toy trucks. Prepare journal entries to record its following production activities for January.

1. Purchased $80,000 of raw materials on credit.

2. Used $42,000 of direct materials in production.

3. Used $22,500 of indirect materials.

4. Incurred total labor cost of $95,000, which is paid in cash.

5. Used $75,000 of direct labor in production.

6. Used $20,000 of indirect labor.

7. Incurred overhead costs of $38,750 (paid in cash).

8. Applied overhead at 110% of direct labor costs.

9. Transferred completed products with a cost of $135,600 to finished goods inventory.

10. Sold $315,000 of products on credit. Their cost is $175,000.

1. Raw Materials Inventory ...... 80,000 Accounts Payable ...... 80,000 Purchased materials on credit.

2. Goods in Process Inventory—Sanding...... 30,000 Goods in Process Inventory—Painting...... 12,000 Raw Materials Inventory ...... 42,000 Used materials in sanding and painting.

3. Factory Overhead ...... 22,500 Raw Materials Inventory ...... 22,500 Used indirect materials.

4. Factory Payroll ...... 95,000 Cash ...... 95,000 Incurred labor costs. 5. Goods in Process Inventory—Sanding...... 50,000 Goods in Process Inventory—Painting...... 25,000 Factory Payroll ...... 75,000 Used labor in sanding and painting.

6. Factory Overhead ...... 20,000 Factory Payroll ...... 20,000 Used indirect labor.

7. Factory Overhead ...... 38,750 Cash ...... 38,750 Incurred overhead costs.

8. Goods in Process Inventory—Sanding...... 62,500 Goods in Process Inventory—Painting...... 18,750 Factory Overhead ...... 81,250 Applied overhead: Sanding-- $50,000 x 125%; Painting-- $25,000 x 75%.

9. Goods in Process Inventory—Painting ...... 119,500 Goods in Process Inv.—Sanding ...... 119,500 Transfer goods from sanding to painting. 10. Finished Goods Inventory...... 135,600 Goods in Process Inventory—Painting 135,600 Transfer goods from painting to finished goods.

11. Accounts Receivable...... 315,000 Sales...... 315,000 ...... Sale of goods on credit.

Cost of Goods Sold...... 175,000 Finished Goods Inventory...... 175,000 Recorded goods sold.