ACC 212
Question 1
The following information is available for Mergenthaler Corporation for the year ended December 31, 2017:
Collection of principal on long-term loan to a supplier $16,000
Acquisition of equipment for cash 10,000
Proceeds from the sale of long-term investment at book value 22,000
Issuance of common stock for cash 20,000
Depreciation expense 25,000
Redemption of bonds payable at carrying (book) value 34,000
Payment of cash dividends 6,000
Net income 30,000
Purchase of land by issuing bonds payable 40,000
In addition, the following information is available from the comparative balance sheet for Mergenthaler at the end of 2017 and 2016:
2017 2016
Cash $148,000 $91,000
Accounts receivable (net) 25,000 15,000
Prepaid insurance 19,000 13,000
Total current assets $192,000 $119,000
Accounts payable $ 30,000 $19,000
Salaries and wages payable 6,000 7,000
Total current liabilities $ 36,000 $26,000
Instructions
Prepare Mergenthaler’s statement of cash flows for the year ended December 31, 2017, using the indirect method.
Question 2
Here is financial information for Valdez Express Inc.
December 31, 2017 December 31, 2016
Current assets $114,000 $80,000
Plant assets (net) 414,000 360,000
Current liabilities 91,000 65,000
Long-term liabilities 134,500 90,000
Common stock, $1 par 149,500 115,000
Retained earnings 153,000 170,000
Instructions
Prepare a schedule showing a horizontal analysis for 2017 using 2016 as the base year.
Question 3
Kwik Delivery Service reports the following costs and expenses in June 2016.
Indirect materials $ 8,400 Driver’s salaries $17,000
Depreciation on delivery Advertising 5,100
equipment 11,200 Delivery equipment
Dispatcher’s salary 5,000 repairs 300
Property taxes on office Office supplies 650
building 870 Office utilities 2,490
CEO’s salary 12,000 Repairs on office
Gas and oil for delivery trucks 3,200 equipment 180
Instructions
Determine the total amount of (a) delivery service (product) costs and (b) period costs.
Question 4
Erickson, Inc. makes student book bags that sell for $20 each. For the coming year, management expects fixed costs to be $225,000. Variable costs are $14 per unit.
Instructions
(a) Compute break-even sales in dollars using the mathematical equation.
(b) Compute break-even sales using the contribution margin ratio.
(c) Compute margin of safety ratio assuming actual sales are $937,500.
(d) Compute the sales required to earn net income of $150,000, using the mathematical equation.
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