During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $7 per unit, Direct labor, $5 per unit, Variable overhead, $6 per unit, and Fixed overhead, $350,000. The company produced 35,000 units, and sold 28,000 units, leaving 7,000 units in inventory at year-end. What is the value of ending inventory under absorption costing?

$126,000

$196,000

$70,000

$350,000

Show transcribed image text During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $7 per unit, Direct labor $5 per unit, Variable overhead, $6 per unit, and Fixed overhead, $350,000. The company produced 35,000 units, and sold 28,000 units, leaving 7000 units in inventory at year-end. What is the value of ending inventory under absorption costing? O $126,000 O $196,000 O $70,000 O $350,000

Multiple Choice Questions 1. In cases in which a consumer has the means to repay all debts but files bankruptcy under Chapter 13, the trustee will likely file a motion with the court to do what? a. Fine the debtor for filing a fraudulent petition. b. Dissolve only abusive debts. c. Dismiss the petition. d. Reaffirm the debts. 2. At the first meeting of the creditors, who normally answers questions from the creditors or trustee? a. The debtor or debtor’s representative. b. Both the debtor and the debtor’s legal counsel. c. Neither the debtor nor the debtor’s representative. d. None of these. 3. Which of the following applies to divorce rather than bankruptcy? a. The general legal procedures and the procedures to uncover concealed assets are similar. b. The general legal procedures are dissimilar but the procedures to uncover concealed assets are similar. c. The general legal procedures are similar, but the procedures to uncover concealed assets are dissimilar. d. Both the general legal procedures and procedures to uncover concealed assets are dissimilar. 4. In a divorce proceeding, loss carryforwards on the federal tax returns should be treated as which of these? a. A debtor’s asset. There is no “debtor” in divorce proceedings, but rather in bankruptcy proceedings. b. A creditor’s asset. c. A debtor’s liability. d. None of these. 5. The forensic accountant should perform a cash flow analysis of a debtor in a bankruptcy proceeding. If the analys

Pinkerton Corporation’s trial balance at December 31, 2011, is presented below. All 2011 transactions have been recorded except for the items described after the trial balance.

Debit

Credit

Cash

$28,000

Accounts Receivable

36,800

Notes Receivable

10,000

Interest Receivable

–0–

Merchandise Inventory

36,200

Prepaid Insurance

3,600

Land

20,000

Building

150,000

Equipment

60,000

Patent

9,000

Allowance for Doubtful Accounts

$500

Accumulated Depreciation—

50,000

Accumulated Depreciation—

24,000

Accounts Payable

27,300

Salaries Payable

–0–

Unearned Rent

6,000

Notes Payable (short-term)

11,000

Interest Payable

–0–

Notes Payable (long-term)

35,000

Common Stock

50,000

Retained Earnings

63,600

Dividends

12,000

Sales

900,000

Interest Revenue

–0–

Rent Revenue

–0–

Gain on Disposal

–0–

Bad Debts Expense

–0–

Cost of Goods Sold

630,000

Depreciation Expense—Buildings

–0–

Depreciation Expense—Equipment

–0–

Insurance Expense

–0–

Interest Expense

–0–

Other Operating Expenses

61,800

Amortization Expense—Patents

–0–

Salaries Expense

110,000

Total

$1,167,400

$1,167,400

Unrecorded transactions

1. On May 1, 2011, Pinkerton purchased equipment for $16,000 plus sales taxes of $800 (all paid in cash).

2. On July 1, 2011, Pinkerton sold for $3,500 equipment which originally cost $5,000. Accumulated depreciation on this equipment at January 1, 2011, was $1,800; 2011 depreciation prior to the sale of equipment was $450.

3. On December 31, 2011, Pinkerton sold for $5,000 on account inventory that cost $3,500.

4. Pinkerton estimates that uncollectible accounts receivable at year-end are $4,000.

5. The note receivable is a one-year, 8% note dated April 1, 2011. No interest has been recorded.

6. The balance in prepaid insurance represents payment of a $3,600, 6-month premium on September 1, 2011.

7. The building is being depreciated using the straight-line method over 30 years. The salvage value is $30,000.

8. The equipment owned prior to this year is being depreciated using the straight-line method over 5 years.

The salvage value is 10% of cost.

9. The equipment purchased on May 1, 2011, is being depreciated using the straight-line method over 5 years, with a salvage value of $1,800.

10. The patent was acquired on January 1, 2011, and has a useful life of 9 years from that date.

11. Unpaid salaries at December 31, 2011, total $2,200.

12. The unearned rent of $6,000 was received on December 1, 2011, for 3 months’ rent.

13. Both the short-term and long-term notes payable are dated January 1, 2011, and carry a 10% interest rate. All interest is payable in the next 12 months.

14. Income tax expense was $15,000. It was unpaid at December 31.

Instructions

(a) Prepare journal entries for the transactions listed above.

(b) Prepare an updated December 31, 2011, trial balance.

(c) Prepare a 2011 income statement and a 2011 retained earnings statement.

(d) Prepare a December 31, 2011, balance sheet.

The Fissure Corporation currently has 2 million common shares of stock outstanding that is trading at $80 per share. The board of directors has decided that the current price per share is too high, preventing many smaller investors from buying even lots of 100 shares. They have decided that a more attractive stock price would be around $40 per share.

a. If they decide to use a stock dividend to reduce the share price, what would be the size of the stock dividend that would reduce the share price to the desirable level?

b. If they decide to use a stock split to reduce the share price, what would be the size of the stock split that would reduce the share price to the desirable level?

When there has been an intercompany sale of a used depreciable asset (i.e., accumulated depreciation has been recorded for this asset), it is necessary to gross up the asset and accumulated depreciation when preparing the consolidated financial statement. Explain what is meant by grossing up the asset and accumulated depreciation and why this action is necessary.