Fundamental Managerial Accounting Concepts
Fundamental Managerial Accounting Concepts
8th Edition
ISBN: 9781259569197
Author: Thomas P Edmonds, Christopher Edmonds, Bor-Yi Tsay, Philip R Olds
Publisher: McGraw-Hill Education
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Chapter 1, Problem 27PSB

a.

To determine

The balance sheet and income statement of Company CM for two options.

a.

Expert Solution
Check Mark

Answer to Problem 27PSB

Option 1

Calculation of income statement of Company B is as follows:

Fundamental Managerial Accounting Concepts, Chapter 1, Problem 27PSB , additional homework tip  1

Table (1)

Hence, the net income of Company B is $44,000.

Calculation of balance sheet of Company B is as follows:

Fundamental Managerial Accounting Concepts, Chapter 1, Problem 27PSB , additional homework tip  2

Table (2)

Option 2

Calculation of income statement of Company B is as follows:

Fundamental Managerial Accounting Concepts, Chapter 1, Problem 27PSB , additional homework tip  3

Table (3)

Hence, the net income of Company CM is $32,000.

Calculation of balance sheet of Company B is as follows:

Fundamental Managerial Accounting Concepts, Chapter 1, Problem 27PSB , additional homework tip  4

Table (4)

Explanation of Solution

Income statement:

Income statement is the financial statement of a company that shows all the revenues earned and expenses incurred by the company over a period of time.

Balance sheet:

Balance sheet is one of the financial statements that summarizes the assets, the liabilities, and the shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Working notes:

Calculate the sale revenue:

Sales revenue=Number of units sold×Price of each =8,000 units×$20=$160,000

Hence, the sales revenue is $160,000.

(1)

Calculate the cost per unit:

Cost per unit=Materials+Labor+Overheads Total number of units produced=$120,00010,000 units=$12

Hence, the cost per unit is $12.

Calculate the cost of goods sold:

Cost of goods sold=Cost per unit×Number of goods sold=$12×8,000 units=$96,000

Hence, the cost of goods sold is $96,000.

(2)

Calculate the total cash:

Total cash=Acquired capital+Sales revenueProduct costdevelopment cost=$150,000+$160,000$120,000$20,000 =$310,000140,000=$170,000

Hence, the total cash is $170,000.

(3)

Calculate the total finished goods:

Finished goods=Cost per unit×Completed goodsNumber of goods sold=$12×10,000 units8,000 units=$12×2,000 units=$24,000

Hence, the finished goods is $24,000.

(4)

Calculate the cost per unit:

Cost per unit=Materials+Labor+Overheads+development cost Total number of units produced=$120,000+$20,00010,000 units=$140,00010,000 units=$14

Hence, the cost per unit is $14.

Calculate the cost of goods sold:

Cost of goods sold=Cost per unit×Number of goods sold=$14×8,000 units=$112,000

Hence, the cost of goods sold is $112,000.

(5)

Calculate the total finished goods:

Finished goods=Cost per unit×Completed goodsNumber of goods sold=$14×10,000 units8,000 units=$14×2,000 units=$28,000

Hence, the finished goods is $28,000.

(6)

b.

To determine

The option in the financial statement that gives a favourable image to the creditors and investors.

b.

Expert Solution
Check Mark

Answer to Problem 27PSB

Option 2 is the financial statement that gives a favorable impression to the creditors and investors with a greater net income of $4,000 than option 1’s net income.

Explanation of Solution

Income statement:

Income statement is the financial statement of a company that shows all the revenues earned and expenses incurred by the company over a period of time.

Balance sheet:

Balance sheet is one of the financial statements that summarizes the assets, the liabilities, and the shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

The option that gives a favorable image to the creditors and investors is as follows:

Option 2 provides the financial statement that gives a favorable image to the creditors and investors because the net income in option 2 is greater than the net income in option 1.

c.

To determine

The amount of bonus under each option and recognize the option that provides the higher bonus.

c.

Expert Solution
Check Mark

Answer to Problem 27PSB

Option 2 provides the president with a higher bonus of $4,800.

Explanation of Solution

Income statement:

Income statement is the financial statement of a company that shows all the revenues earned and expenses incurred by the company over a period of time.

Balance sheet:

Balance sheet is one of the financial statements that summarizes the assets, the liabilities, and the shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Calculation of bonus under option 1 is as follows:

Bonus=Net income×10% on net income=$44,000×20%=$4,400

Hence, the bonus received by the president under option 1 is $4,400.

Calculation of bonus under option 2 is as follows:

Bonus=Net income×10% on net income=$48,000×10%=$4,800

Hence, the bonus received by the president under option 2 is $4,800.

d.

To determine

The amount of tax rate under each option and recognize which option pays less tax.

d.

Expert Solution
Check Mark

Answer to Problem 27PSB

Option 1 minimizes the cost of income tax expenses for the company by $15,400.

Explanation of Solution

Calculation of income tax under option 1 is as follows:

Bonus=Net income×35% income tax rate=$44,000×35%=$15,400

Hence, the income tax expenses under option 1 is $15,400.

Calculation of income tax under option 2 is as follows:

Bonus=Net income×35% income tax rate=$48,000×35%=$16,800

Hence, the bonus received by the president under option 2 is $16,800.

e.

To determine

Comment on the conflict between the company’s president as determined by requirement c and the owner-based requirement d, and define an incentive compensation plan that would avoid the conflict.

e.

Expert Solution
Check Mark

Explanation of Solution

The conflicts between the owner and the president are as follows:

Option 2 provides the president with a higher bonus of $4,800. Option 1 minimizes the cost of income tax expenses for the company by $15,400. These are the two conflicts between the owner and the president.

The reasons to avoid these conflicts are as follows:

  • The bonus plans of the company can be tied up with the company’s stock price, instead of net income.
  • Market efficiency increases; as a result, the performance of the company increases, which creates a value to the company’s stock price.

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Chapter 1 Solutions

Fundamental Managerial Accounting Concepts

Ch. 1 - 4. How does product costing used in financial...Ch. 1 - 5. What does the statement “costs can be assets or...Ch. 1 - Prob. 6QCh. 1 - 7. How do product costs affect the financial...Ch. 1 - 8. What is an indirect cost? Provide examples of...Ch. 1 - Prob. 9QCh. 1 - Prob. 10QCh. 1 - Prob. 11QCh. 1 - Prob. 12QCh. 1 - 13. What are some of the common ethical conflicts...Ch. 1 - 14. What costs should be considered in...Ch. 1 - 15. What is a just-in-time (JIT) inventory system?...Ch. 1 - Prob. 16QCh. 1 - Prob. 17QCh. 1 - Prob. 18QCh. 1 - 19. What do the terms valueadded activity and...Ch. 1 - Prob. 1ESACh. 1 - Prob. 2ESACh. 1 - Prob. 3ESACh. 1 - Exercise 1-4A Identifying effect of product versus...Ch. 1 - Exercise 1-4A Identifying effect of product versus...Ch. 1 - Exercise 1-6A Identifying product versus SG&A...Ch. 1 - Prob. 7ESACh. 1 - Exercise 1-8A Allocating product costs between...Ch. 1 - Prob. 9ESACh. 1 - Prob. 10ESACh. 1 - Exercise 1-11A Identifying product costs in a...Ch. 1 - Prob. 12ESACh. 1 - Prob. 13ESACh. 1 - Prob. 14ESACh. 1 - Prob. 15ESACh. 1 - Prob. 16ESACh. 1 - Prob. 17ESACh. 1 - Prob. 18ESACh. 1 - Problem 1-19A Characteristics of financial versus...Ch. 1 - Prob. 20PSACh. 1 - Problem 1-21A Effect of product versus period...Ch. 1 - Problem 1-22A Product versus SG&A costs The...Ch. 1 - Problem 1-23A Upstream, midstream, and downstream...Ch. 1 - Problem 1-24A Service versus manufacturing...Ch. 1 - Problem 1-25A Using JIT to reduce inventory...Ch. 1 - Prob. 26PSACh. 1 - Prob. 27PSACh. 1 - Prob. 28PSACh. 1 - Prob. 29PSACh. 1 - Prob. 1ESBCh. 1 - Exercise 1-2B Identifying product versus selling,...Ch. 1 - Prob. 3ESBCh. 1 - Prob. 4ESBCh. 1 - Exercise 1-5B Effect of product versus SG&A costs...Ch. 1 - Prob. 6ESBCh. 1 - Prob. 7ESBCh. 1 - Exercise 1-8B Allocating product costs between...Ch. 1 - Prob. 9ESBCh. 1 - Prob. 10ESBCh. 1 - Exercise 1-11B Product costs in a manufacturing...Ch. 1 - Prob. 12ESBCh. 1 - Prob. 13ESBCh. 1 - Prob. 14ESBCh. 1 - Prob. 15ESBCh. 1 - Prob. 16ESBCh. 1 - Prob. 17ESBCh. 1 - Prob. 18ESBCh. 1 - Prob. 19PSBCh. 1 - Prob. 20PSBCh. 1 - Prob. 21PSBCh. 1 - Prob. 22PSBCh. 1 - Prob. 23PSBCh. 1 - Prob. 24PSBCh. 1 - Prob. 25PSBCh. 1 - Prob. 26PSBCh. 1 - Prob. 27PSBCh. 1 - Prob. 28PSBCh. 1 - Prob. 29PSBCh. 1 - Prob. 1ATCCh. 1 - Prob. 2ATCCh. 1 - ATC 1-3 Research Assignment Identifying product...Ch. 1 - ATC 1-4 Writing Assignment Emerging practices in...Ch. 1 - Prob. 5ATCCh. 1 - ATC 1-6 Spreadsheet Assignment Using Excel The...Ch. 1 - ATC 1-7 Spreadsheet Assignment Mastering...Ch. 1 - Prob. 1CP
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