Problem 17-3B

Koto Corporation began the month of June with $300,000 of current assets, a
current ratio of 2.5:1, and an acid-test ratio of 1.4:1. During the month, it
completed the following transactions (the company uses a perpetual inventory
system).

June1 Sold merchandise inventory that cost $75,000 for $120,000 cash.
3 Collected $88,000 cash on an account receivable.
5 Purchased $150,000 of merchandise inventory on credit.
7 Borrowed $100,000 cash by giving the bank a 60-day, 10% note.
10Borrowed $120,000 cash by signing a long-term secured note.
12Purchased machinery for $275,000 cash.
15Declared a $1 per share cash dividend on the 80,000 shares of
outstanding common stock.
19Wrote off a $5,000 bad debt against the Allowance for Doubtful
Accounts account.
22Paid $12,000 cash to settle an account payable.
30Paid the dividend declared on June 15.
Required
Prepare a table showing the company's (1) current ratio, (2) acid-test ratio, and
(3) working capital after each transaction. Round ratios to hundredths

Transaction

Current
Assets

Quick
Assets

Current
Liabilities

Beginning*

$300,000

$168,000

$120,000

2.50

1.40

$180,000

June 1

+120,000

+120,000

-75,000

_______

_______

____

____

_______

Bal.

345,000

288,000

120,000

2.88

2.40

225,000

June 3

+88,000

+88,000

-88,000

-88,000

_______

____

____

_______

345,000

288,000

120,000

2.88

2.40

225,000

_______ +150,000

____

____

_______

495,000

288,000

270,000

1.83

1.07

225,000

+100,000

+100,000

+100,000

____

____

_______

595,000

388,000

370,000

1.61

1.05

225,000

+120,000

+120,000

_______

____

____

_______

715,000

508,000

370,000

1.93

1.37

345,000

-275,000

-275,000

_______

____

____

_______

Bal.

440,000

233,000

370,000

1.19

0.63

70,000

June 15

_______

_______

+80,000

____

____

_______

Bal.

440,000

233,000

450,000

0.98

0.52

-10,000

+0

+0

_______

____

____

_______

Bal.

440,000

233,000

450,000

0.98

0.52

-10,000

June 22

-12,000

-12,000

-12,000

____

____

_______

Bal.

428,000

221,000

438,000

0.98

0.50

-10,000

June 30

-80,000

-80,000

-80,000

____

____

_______

$348,000

$141,000

$358,000

0.97

0.39

-10,000

Bal.
June 5
Bal.
June 7
Bal.
June 10
Bal.
June 12

June 19

Bal.

+150,000

Current Acid-Test
Ratio
Ratio

Working
Capital

Exercise 18-12

For each of the following account balances for a manufacturing company, place a in the
appropriate column indicating that it appears on the balance sheet, the income statement, the
manufacturing statement, and/or a detailed listing of factory overhead costs. Assume that the
income statement shows the calculation of cost of goods sold and the manufacturing statement
shows only the total amount of factory overhead. (An account balance can appear on more than
one report.

Balance
Income
Manufacturing
Account
Sheet Statement
Statement

Accounts receivable..............................

Computer supplies used in

office....................................................

Beginning finished goods

inventory..............................................

Beginning goods in process

inventory..............................................

Beginning raw materials

inventory..............................................

Cash........................................................
Depreciation expense
Factory building..................................
Depreciation expense
Factory equipment..............................

Depreciation expenseOffice
building................................................

Depreciation expenseOffice
equipment............................................

Direct labor.............................................

Ending finished goods

inventory..............................................

Ending goods in process

inventory..............................................

Ending raw materials

inventory..............................................
Factory maintenance wages................
Computer supplies used in
factory..................................................

Income taxes..........................................
Insurance on factory building..............

Rent on office building..........................

Office supplies used.............................

Overhead
Table

Property taxes on factory

building................................................
Raw materials purchases.....................
Sales.......................................................

Problem 18-2A
Many fast food restaurants compete on lean business concepts. Match
each of the following activities at a fast food restaurant with the lean
business concept it strives to achieve.

1Courteous employees
.

a.Total quality management

(TQM)

2Food produced to order

.

b.Just-in-time (JIT)

3New product development

.

c. Continuous improvement
(CI)

C 4. Clean tables and floors

A

5Orders filled within 3 minutes

.

6
Standardized food making processes
.

7
Customer satisfaction surveys
.

8
Continually changing menus
.

9
Drive-through windows
.

1
Standardized menus from location to
C 0
location
.

Exercise 19-11
Hansel Corporation has requested bids from several architects to design
its new corporate headquarters. Frey Architects is one of the firms
bidding on the job. Frey estimates that the job will require the following
direct labor.
Frey applies overhead to jobs at 175% of direct labor cost. Frey would
like to earn at least $80,000 profit on the architectural job. Based on
past experience and market research, it estimates that the competition
will bid between $285,000 and $350,000 for the job.
1. What is Frey's estimated cost of the architectural job?

Estimated cost to design building:

Estimated
Labor type
hours
Architects..........................................
150
Staff...................................................
300
Clerical..............................................
500

Hourly rate
$300
75
20

Total cost
$ 45,000
22,500
10,000

Total labor cost......................................................................... $ 77,500

Overhead @ 175% of direct labor cost................................... 135,625
Total estimated cost................................................................. $213,125

2. What bid would you suggest that Frey submit?

First we need to determine an estimated selling price, based on its cost and
desired profit for this job:
Total estimated cost................................................................. $213,125
Desired profit............................................................................ 80,000
Estimated selling price............................................................ $293,125
This $293,125 price may or may not be its bid. It must consider past
experiences and competition. It might make the bid at the low end of what
it believes the competition will bid. By bidding at about $285,000, the profit

on the job will only be $71,875 ($285,000 213,125). While this may allow
Frey to get the job, it must consider several other factors. Among them:
a. How accurate is its estimate of costs? If costs are understated, the bid
may be too low. This will cause profits to be lower than anticipated. If
costs are overestimated, it may bid too high and lose the job.
b. How accurate is the estimate of the competitions probable bidding
range? If it has estimated the low end too low, it may be unnecessarily
underbidding. If it has estimated the low end too high, it may lose the
job.
c. Is it willing to meet the expected low bid of the competition? In the
example above, would it be acceptable to earn only $71,875 on this job
(about a 25% gross profit ratio), rather than the normal $80,000 (about a
27% gross profit ratio)? Can it earn a better profit on another job?

Exercise 20-2
Wooden Toy Company manufactures toy trucks. Prepare journal entries
to record its following production activities for January.
1. Purchased $80,000 of raw materials on credit.
2. Used $42,000 of direct materials in production.
3. Used $22,500 of indirect materials.
4. Incurred total labor cost of $95,000, which is paid in cash.
5. Used $75,000 of direct labor in production.
6. Used $20,000 of indirect labor.
7. Incurred overhead costs of $38,750 (paid in cash).
8. Applied overhead at 110% of direct labor costs.
9. Transferred completed products with a cost of $135,600 to finished
goods inventory.
10. Sold $315,000 of products on credit. Their cost is $175,000.

1.

Raw Materials Inventory ...............................................

80,000
Accounts Payable ...................................................

80,000

Purchased materials on credit.

2.

Goods in Process InventorySanding........................

30,000
Goods in Process InventoryPainting........................
12,000
Raw Materials Inventory .........................................

42,000

Used materials in sanding and painting.

3.

Factory Overhead ..........................................................

22,500
Raw Materials Inventory .........................................

22,500

Used indirect materials.

4.

Factory Payroll ..............................................................

95,000
Cash ..........................................................................

95,000

Incurred labor costs.

5.

Goods in Process InventorySanding........................

50,000
Goods in Process InventoryPainting........................
25,000
Factory Payroll ........................................................

75,000

Used labor in sanding and painting.

6.

Factory Overhead ..........................................................

20,000
Factory Payroll ........................................................

20,000

Used indirect labor.

7.

Factory Overhead ..........................................................

38,750
Cash ..........................................................................

38,750

Incurred overhead costs.

8.

Goods in Process InventorySanding........................

62,500
Goods in Process InventoryPainting........................
18,750
Factory Overhead ....................................................

81,250

Applied overhead: Sanding-- $50,000

x 125%; Painting-- $25,000 x 75%.

9.

Goods in Process InventoryPainting .......................

119,500
Goods in Process Inv.Sanding ...........................

119,500

Transfer goods from sanding to painting.

10.

Finished Goods Inventory.............................................

135,600
Goods in Process InventoryPainting
135,600
Transfer goods from painting to finished
goods.

11.

Accounts Receivable.....................................................
315,000
Sales..........................................................................
315,000
Sale of goods on credit.

Cost of Goods Sold........................................................

175,000
Finished Goods Inventory.......................................
175,000
Recorded goods sold.