Preparation of Adjusting Entries

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Preparation of Adjusting Entries

Bartow Photographic Services takes wedding and graduation photographs. At December 31, the end of Bartow’s accounting period, the following information is available:

All wedding photographs are paid for in advance, and all cash collected for them is credited to Unearned Service Revenue. Except for a year end adjusting entry, no other entries are made for service revenue from wedding photographs. During the year, Bartow received $42,600 for wedding photographs. At year end, $37,330 of the $42,600 had been earned. The beginning-of-the-year balance of Unearned Service Revenue was zero.

During December, Bartow photographed 223 members of the next year’s graduating class of Shaw High School. The school has asked Bartow to print one copy of a photograph of each student for the school files. Bartow delivers these photographs on December 28 and will bill the school $5.00 per student in January of next year. Revenue from photographs ordered by students will be recorded as the orders are received during the early months of next year.

Equipment used for developing and printing was rented for $22,500. The rental term was for 1 year beginning on August 1 and the entire year of rent was paid on August 1. The payment was debited to Prepaid Rent.

Depreciation on the firm’s building for the current year is $9,390.

Wages of $4,168 are owed but unpaid and unrecorded at December 31.

Supplies at the beginning of the year were $2,400. During the year, supplies costing $19,600 were purchased from Kodak. When the purchases were made, their cost was debited to Supplies. At year end, a physical inventory indicated that supplies costing $4,100 were on hand.

Required:

Hide1. Prepare the adjusting entries for each of these items.a.Dec. 31        (Record earned revenue)
Hideb.Dec. 31        (Record credit sales to customers)
Hidec.Dec. 31        (Record use of prepaid rent)
Hided.Dec. 31        (Record depreciation)
Hidee.Dec. 31        (Record wages owed to employees)
Hidef.Dec. 31        (Record use of supplies)

2. Conceptual Connection: By how much would net income be overstated or understated if the accountant failed to make the adjusting entries?
SelectOverstatedUnderstatedCorrect 1 of Item 7 by $

NPV, Make or Buy, MACRS, Basic Analysis

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NPV, Make or Buy, MACRS, Basic Analysis

2015 2016 2017 2018 2019 50,000 50,000 52,000 55,000 55.000

Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows:

The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of $945,000 with terms of 2/10, n/30; the company’s policy is to take all purchase discounts. The freight on the equipment would be $11,000, and installation costs would total $22,900. The equipment would be purchased in December 2014 and placed into service on January 1, 2015. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of $12,000 at the end of its economic life in 2019. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of $2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition.

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   The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of $1,500. Rather than replace the equipment, one of Jonfran’s production managers has suggested that the waste containers be purchased. One supplier has quoted a price of $27 per container. This price is $8 less than Jonfran’s current manufacturing cost, which is as follows:

Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at $45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment.

   Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate.

   You must use the Exhibit 19B.1 and Exhibit 19B.2 present value tables and Exhibit 19.5 to solve the following problems.

Required:

Hide1. Prepare a schedule of cash flows for the make alternative. Enter cash outflows as negative amounts and cash inflows as positive amounts. Round your answers to the nearest dollar when rounding is required.Jonfran CompanySchedule of Cash FlowsItemCFYear 2014Equipment$DiscountFreightInstallationSalvage-oldWorking capital reductionTotal$Year 2015Operating expenses$Depreciation tax shieldTotal$Year 2016Operating expenses$Depreciation tax shieldTotal$Year 2017Operating expenses$Depreciation tax shieldTotal$Year 2018Operating expenses$Depreciation tax shieldTotal$Year 2019Operating expenses$Salvage-newTotal$

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Prepare a separate analysis of operating expenses combining variable and fixed costs into total cash operating expenses. Then factor them into the analysis on an after tax basis. Don’t forget to factor in the cash flow from selling the assets in the beginning and end of the analysis.

Calculate the NPV of the make alternative. Round intermediate calculations and your final answer to the nearest dollar. If the NPV is negative, enter your answer as a negative value.

$

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NPV is the present value of all the cash flows for the project. Remember the up front project cost is at time zero so it doesn’t need to be adjusted by a discount factor to present value.

Hide2. Prepare a schedule of cash flows for the buy alternative. Enter cash outflows as negative amounts and cash inflows as positive amounts.Jonfran CompanySchedule of Cash FlowsItemCFYear 2014Salvage-old$Year 2015Purchase costYear 2016Purchase cost:Year 2017Purchase cost:Year 2018Purchase cost:Year 2019Purchase cost:

In this chapter and in all succeeding work throughout the course, unless instructed otherwise, calculate hourly rates and overtime rates as follows:

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Note: In this chapter and in all succeeding work throughout the course, unless instructed otherwise, calculate hourly rates and overtime rates as follows:

1.Carry the hourly rate and the overtime rate to 3 decimal places and then round off to 2 decimal places (round the hourly rate to 2 decimal places before multiplying by one and one-half to determine the over-time rate).
2.If the third decimal place is 5 or more, round to the next higher cent.
3.If the third decimal place is less than 5, simply drop the third decimal place.
Examples:Monthly rate $1,827
Weekly rate ($1,827 × 12)/52 = $421.615 rounded to $421.62
Hourly rate $421.62/40 = $10.540 rounded to $10.54
O.T. rate $10.54 × 1.5 = $15.81

Also, use the minimum hourly wage of $7.25 in solving these problems and all that follow.

During the fourth quarter of 2017, there were seven biweekly paydays on Friday (October 6, 20; November 3, 17; December 1, 15, 29) for Quality Repairs. Using the forms supplied below, complete the following forms for the fourth quarter.

If an amount or input box does not require an entry, leave it blank or enter “0”.

Quarterly Payroll Data
Total Earnings
5 EmployeesOASDIHIFITSIT
$18,540.00$1,149.48$268.83$1,854.00$1,297.80
Employer’s OASDI$1,149.48
Employer’s HI268.83
Federal deposit liability each pay670.09

a. Complete the Federal Deposit Information Worksheets reflecting electronic deposits (monthly depositor). The employer’s phone number is (501) 555-7331. Federal deposit liability each pay, $670.09.

FEDERAL DEPOSIT INFORMATION WORKSHEET
Employer
Identification Number00-0004701NameQUALITY REPAIRS
Month Tax Year Ends12Amount of Deposit
Type of Tax (Form)Tax Period
Address10 SUMMIT SQUAREPhone Number(501) 555-7331
City, State, ZIPCITY, STATE 00000-0000

To be deposited on or before .

FEDERAL DEPOSIT INFORMATION WORKSHEET
Employer
Identification Number00-0004701NameQUALITY REPAIRS
Month Tax Year Ends12Amount of Deposit
Type of Tax (Form)Tax Period
Address10 SUMMIT SQUAREPhone Number(501) 555-7331
City, State, ZIPCITY, STATE 00000-0000

To be deposited on or before .

FEDERAL DEPOSIT INFORMATION WORKSHEET
Employer
Identification Number00-0004701NameQUALITY REPAIRS
Month Tax Year Ends12Amount of Deposit
Type of Tax (Form)Tax Period
Address10 SUMMIT SQUAREPhone Number(501) 555-7331
City, State, ZIPCITY, STATE 00000-0000

To be deposited on or before .

b. Employer’s Quarterly Federal Tax Return, Form 941. The form is signed by you as president on January 31, 2018.

Form 941 for 20–:
(Rev. January 2016)Employer’s QUARTERLY Federal Tax Return
Department of the Treasury — Internal Revenue Service
OMB No. 1545-0029Employer identification number (EIN)00–0004701Name (not your trade name)QUALITY REPAIRSTrade name (if any)Address10 SUMMIT SQUARENumberStreetSuite or room numberCITYST00000-0000CityStateZIP codeForeign country name  Foreign province/countyForeign postal codeReport for this Quarter of 20–
(Select one.)
Instructions and prior year forms are available atwww.irs.gov/form941.Read the separate instructions before you complete Form 941. Type or print within the boxes.Part 1:  Answer these questions for this quarter.  1Number of employees who received wages, tips, or other compensation for the pay period including: Mar. 12 (Quarter 1), June 12 (Quarter 2), Sept. 12 (Quarter 3), or Dec. 12 (Quarter 4)1  2Wages, tips, and other compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2  3Federal income tax withheld from wages, tips, and other compensation . . . . . . . . . . . . . . . . . . . . . . . . .3  4If no wages, tips, and other compensation are subject to social security or Medicare tax? Check and go to line 6.  Column 1  Column 25aTaxable social security wages . . . . .x .124 =5bTaxable social security tips . . . . . . . .x .124 =5cTaxable Medicare wages & tips . . . . .x .029 =5dTaxable wages & tips subject to
Additional Medicare Tax withholdingx .009 =  5eAdd Column 2 from lines 5a, 5b, 5c, and 5d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5e  5fSection 3121(q) Notice and Demand—Tax due on unreported tips (see instructions) . . . . . . . . . . . . . . .5f  6Total taxes before adjustments. Add lines 3, 5e, and 5f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6  7Current quarter’s adjustment for fractions of cents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7  8Current quarter’s adjustment for sick pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8  9Current quarter’s adjustments for tips and group-term life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .9  10Total taxes after adjustments. Combine lines 6 through 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10  11Total deposits for this quarter, including overpayment applied from a prior quarter and overpayments applied from Form 941-X, 941-X (PR), 944-X, or 944-X (SP) filed in the current quarter . .11  12Balance due. If line 10 is more than line 11, enter the difference and see instructions . . . . . . . . . . . . . . . . . . . .12  13Overpayment. If line 11 is more than line 10, enter the difference  Check one: ? Apply to next return.   ? Send a refund.? You MUST complete both pages of Form 941 and SIGN it.Next ?For Privacy Act and Paperwork Reduction Act Notice, see the back of the Payment Voucher.Cat. No. 17001ZForm 941 (Rev. 1-2016)
Name (not your trade name)Employer identification number (EIN)QUALITY REPAIRS00-0004701Part 2:  Tell us about your deposit schedule and tax liability for this quarter.If you are unsure about whether you are a monthly schedule depositor or a semiweekly schedule depositor, see section 11 of Pub. 15.  14 Check one:a.  Line 10 on this return is less than $2,500 or line 10 on the return for the prior quarter was less than $2,500, and you did not incur a $100,000 next-day deposit obligation during the current quarter. If line 10 for the prior quarter was less than $2,500 but line 10 on this return is $100,000 or more, you must provide a record of your federal tax liability. If you are a monthly schedule depositor, complete the deposit schedule below; if you are a semiweekly schedule depositor, attach Schedule B (Form 941). Go to Part 3.b.  You were a monthly schedule depositor for the entire quarter. Enter your tax liability for each month and total liability for the quarter, then go to Part 3.Tax liability:Month 1Month 2Month 3Total liability for quarterTotal must equal line 10.c.  You were a semiweekly schedule depositor for any part of this quarter. Complete Schedule B (Form 941), Report of Tax Liability for Semiweekly Schedule Depositors, and attach it to Form 941.Part 3:  Tell us about your business. If a question does NOT apply to your business, leave it blank.  15If your business has closed or you stopped paying wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? Check here, andenter the final date you paid wages/ /.  16If you are a seasonal employer and you do not have to file a return for every quarter of the year . . . . . . . . . . . . . . . . . ? Check here.Part 4:  May we speak with your third-party designee?Do you want to allow an employee, a paid tax preparer, or another person to discuss this return with the IRS? See the instructions for details.Designee’s name and phone numberSelect a 5-digit Personal Identification Number (PIN) to use when talking to the IRS.Part 5:  Sign here. You MUST complete both pages of Form 941 and SIGN it.Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.?Sign your
name herePrint your
name herePrint your
title hereDate1/31/18Best daytime phone501-555-7331  Paid Preparer Use OnlyCheck if you are self-employed . . . . ?Preparer’s namePTINPreparer’s signatureDate/ /Firm’s name (or yours if self-employed)EINAddressPhoneCityStateZIP codePage 2Form 941 (Rev. 1-2016)
Source: Internal Revenue Service

c. Employer’s Report of State Income Tax Withheld for the quarter, due on or before January 31, 2018.

EMPLOYER’S REPORT
OF STATE INCOME TAX WITHHELD(DO NOT WRITE IN THIS SPACE)IMPORTANT, PLEASE REFER
TO THIS NUMBER IN ANY CORRESPONDENCE ?WITHHOLDING IDENTIFICATION
NUMBERMONTH OF OR
QUARTER ENDING00-0-3301DEC. 20–1.GROSS PAYROLL THIS PERIOD$IF YOU ARE A SEASONAL EMPLOYER AND THIS IS YOUR FINAL REPORT FOR THISQUALITY REPAIRS
10 SUMMIT SQUARE
CITY, STATE 00000-00002.STATE INCOME TAX WITHHELD$SEASON, CHECK HERE   ?AND SHOW THE NEXT MONTH IN WHICH YOU
WILL PAY WAGES3.ADJUSTMENT FOR PREVIOUS PERIOD(S). (ATTACH STATEMENT)$4.TOTAL ADJUSTED TAX (LINE 2 PLUS OR MINUS LINE 3)$IF NAME OR ADDRESS IS INCORRECT, PLEASE MAKE CORRECTIONS.
THIS REPORT MUST BE RETURNED EVEN IF NO AMOUNT HAS BEEN WITHHELD5.PENALTY (35% OF LINE 4)$6.INTEREST$Under penalties prescribed by law, I hereby affirm that to the best of my knowledge and belief this return, including any accompanying schedules and statements, is true and complete. If prepared by a person other than taxpayer, his affirmation is based on all information of which he has any knowledge.7.TOTAL AMOUNT DUE AND PAYABLE$SIGNATURE:STUDENTTITLE:PresidentDATE:1/31/18MAIL THIS REPORT WITH CHECK OR MONEY ORDER PAYABLE TO THE DEPT. OF REVENUE ON OR BEFORE DUE DATE TO AVOID PENALTY.

Compute the following ratios using information from the company annual report that was issued before California Pizza Kitchen was acquired.

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California Pizza Kitchen opened its first restaurant In Beverly Hills in 1985. Almost immediately after the first location opened, it expanded from California to more than 250 locations in more than 30 states and 11 countries. California Pizza Kitchen completed an initial public offering in August 2000 and traded on the NASDAQ National Market under the ticker symbol CPKI. On July 7, 2011, Golden Gate Capital completed the acquisition of California Pizza Kitchen and, as a result of the acquisition, the company’s common stock is no longer publicly traded.
CALIFORNIA PIZZA KITCHEN, INC., AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended January 2, 2011, January 3, 2010, and December 28, 2008
(amounts in thousands, except for per share data)
201020092008
Revenues:
    Restaurant sales$644,061$665,250$685,571
    Royalties from licensing agreement6,7728,3897,230
    Domestic franchise revenues3,9453,5293,602
    International franchise revenues2,5982,2732,316
           Total revenues657,376679,441698,719
Costs and expenses:
    Food, beverage and paper supplies150,747156,196167,541
    Labor241,878249,495249,421
    Direct operating and occupancy149,570143,949142,343
       Cost of sales542,195549,640559,305
    General and administrative53,65653,71654,567
    Depreciation and amortization39,02142,19642,314
    Pre-opening costs3,4642,0384,673
    Loss on impairment of property and equipment19,06423,26613,661
    Store closure costs1,9167471,241
    Litigation, settlement and other costs8,8241,674801
  
       Total costs and expenses668,140673,277676,562
Operating (loss)/income(10,764)6,16422,157
    Interest expense, net(15)(983)(1,519)
  
(Loss)/income before income tax (benefit)/provision(10,779)5,18120,638
    Income tax (benefit)/provision(9,333)(2,260)4,540
  
Net (loss)/income$(1,446)$7,441$16,098
  
Net (loss)/income per common share:
    Basic$(0.06)$0.29$0.42
  
    Diluted$(0.06)$0.29$0.42
  
Weighted average shares used in
calculating net (loss)/income per common share:
    Basic24.68324.25925.388
  
    Diluted24.68324.33825.406
  
CALIFORNIA PIZZA KITCHEN, INC., AND SUBSIDIARIES
Consolidated Balance Sheets
January 2, 2011, and January 3 2010
(in thousands, except for share data)
2010
2009
Assets
Current assets:
    Cash and cash equivalents$47,230$47,424
    Other receivables19,93920,886
    Inventories8,9428,612
    Current deferred tax asset, net9,8508,701
    Prepaid rent5568,012
    Other prepaid expenses8,4334,046
  
        Total current assets94,95097,681
Property and equipment, net287,661292,631
Noncurrent deferred tax asset, net23,86926,779
Goodwill7,6777,677
Other intangibles, net6,8656,742
Other assets10,0688,664
  
        Total assets$431,090$440,174
  
Liabilities and stockholders’ equity
Current liabilities:
    Accounts payable$25,720$14,708
    Accrued compensation and benefits25,43125,359
    Accrued rent27,39222,355
    Deferred rent credits7,2436,930
    Other accrued liabilities37,09034,315
    Gift card liability23,32729,090
    Store closure reserve801,041
  
        Total current liabilities146,283133,798
Long-term debt—23,600
Other liabilities22,75816,091
Deferred rent credits, net of current portion36,43135,732
Income taxes payable, net of current portion64411,140
Commitments and contingencies––
Stockholders’ equity:
    Common stock—$0.01 par value, 80,000,000 shares
     authorized, 25,879,797 and 25,495,800 shares
     issued and outstanding at January 2, 2011, and
     January 3, 2010, respectively		259255
    Additional paid-in capital192,563187,000
    Retained earnings32,15232,558
        Total stockholders’ equity224,974219,813
  
        Total liabilities and stockholders’ equity$431,090$440,174
  
Compute the following ratios using information from the company annual report that was issued before California Pizza Kitchen was acquired. (Round your answers to 2 decimal places. Enter percentage answers rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34). Negative amounts should be indicated by a minus sign.)a.Current ratiob.Quick ratioc.Profit margin%d.Return on equity%e.Inventory turnoverf.Debt-to-equityg.Earnings per share