SPRINC2013TEAMPROJECT DUE: Monday March 26.2018 ACC2311 Below is Sloane Compan y

Question

SPRINC2013TEAMPROJECT DUE: Monday March 26.2018 ACC2311 Below is Sloane Compan y's income statement for 2017 that was prepared by an inexperienced accountant. Sloane Company Income Statement As of December 31, 2017 Revenues: Sales revenue Accrued rent $290,550 4,000 2,700 2,000 1,500 18,000 $318,750 Gain on sale of investment.. Interest payable Accumulated depreciation.. Less operating expenses: 7,200 ..9,200 Utilities expense... Direct manufacturing labor cost. . 50,000 Direct materials Insurance expense.... Restructuring costs.. Rent expense . 95,000 2,500 27,000 Other factory indirect costs... Dividend pai Administrative expenses.. Research and development expense. Interest expense Prepaid insurance 4,000 1,500 34,400 5,000 1,200 4,000 Total operating expenses $14.800 Net operating loss a. Seventy five percent (75%) of utilities expense and 70% of insurance expense are for factory operations. Apply the remaining utilities and insurance expense equally to selling and administrative expenses. tethe remaining rent b. Eighty percent (80%) of the rent expense is associated with factory operation Allo sellng & nlan equally to selling and administrative expenses. no e. Factory equipment was purchased January 1, 2016. It was estimated that the useful life of the equipment is 5 years and the residual value $5,000. The $18,000 accumulated depreciation above is for 2016. No deprecia was charged for 2017. The company uses the double-declining balance method of depreciation. d. Inventory balances are: December 31.2017 January 1,2017 $4,600 $7,000

Explanation / Answer

1. Schedule of Cost of goods manufactured for the year ended December 31, 2017 Particulars Amount Direct Material Used Beginning raw material inventory $4,600 Add: Cost of material purchased $95,000 Total raw material available $99,600 Less: Ending raw material inventory $7,000 Total raw material used $92,600 Direct Labour $42,000 Manufacturing Overhead Indirect manufacturing labour cost $7,200 Utility expenses (75%) $6,900 Insurance expenses (70%) $1,750 Rent $21,700 Other factory indirect cost $4,000 Depreciation for 2016 $2,000 Depreciation for 2017 $12,000 Total Manufacturing overhead $55,550 Add: Beginning WIP inventory $9,000 $199,150 Less: Ending WIP inventory $12,000 Cost of goods manufactured $187,150 Beginning Finished goods inventory $24,000 Add: Cost of goods manufactured $187,150 $211,150 Less: Ending Finished Goods inventory $30,000 Cost of Goods sold $181,150 2. Income Statement for the year ended December 31, 2017 Particulars Amount Sales revenue $290,550 Less: Cost of Goods sold $181,150 Gross Profit $109,400 Operating Expenses Selling expenses $42,225 Administrative expenses $38,625 Total Operating expenses $80,850 Operating Profit $28,550 Non-operating income/expenses Gain on sale of Investment $2,700 Restructuring Cost $4,550 Research and development expenses $5,000 Interest expenses $1,200 Total Non-operating expenses $8,050 Net Profit before Income Tax $20,500 Income tax @ 20% $4,100 Net Profit $16,400 Note: Selling Expenses $38,000 Utility expenses (12.5%) $1,150 Insurance expenses (15%) $375 Rent (10%) $2,700 Total selling expenses $42,225 Administrative Expenses $34,400 Utility expenses (12.5%) $1,150 Insurance expenses (15%) $375 Rent (10%) $2,700 Total administrative expenses $38,625 3. Cost of producing one greeting card Total Production cost $262,000 Total Cards produced    110,000 Unit production cost 2.38 Cost of goods sold $181,150 Selling expenses $42,225 Administrative expenses $38,625 Total Production Cost $262,000 4. The company is making profit, so it should not sell its assets and get out of business Depreciation on Factory equipment Year Net book value Beginning of year Double declining balance depreciation computed as 2 x straight line depreciation rate x beginning NBV Net Book Value end of year 1 50000 20000 30000 2 30000 12000 18000 3 18000 7200 10800 4 10800 4320 6480 5 6480 1480 5000 Salvage value Double declining depreciation rate = 2 x Straight line depreciation rate Straight line depreciation = (Cost of equipment - salvage value)/number of years of useful life                                                      = $50000-$5000 / 5                                                      = $9000 Straight line depreciation rate = $9000/$45000 = 20% Double declining depreciation rate = 2 x 20% = 40%

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