Mr. Bailey asks that you prepare Divisional Income Statements showing what 20Y1 results would have been had the Audit Division purchased all the excess capacity of the Tax Division, using a negotiated transfer price. The divisional managers tell you that, with the excess capacity of the Tax Division of 800 hours, the Audit Division can perform 4 more audits during the year, and the Audit Division would agree to a negotiated rate of $80.00 per hour to be paid to the Tax Division for the additional hours required, with the Tax Division selling all its excess capacity to the Audit Division. The Tax Division would still be responsible for paying the salaries of their employees. Complete the following Income Statements. Enter all amounts as positive numbers. If there is no amount or an amount is zero, enter “0”. BOR CPAs, Inc. Income Statements For the Year Ended December 31, 20Y1 1 Audit Division Tax Division Total Company 2 Fees earned: 3 Audit fees (16 engagements) $1,200,000.00 $1,200,000.00 4 Tax fees (45 engagements) $708,750.00 708,750.00 5 Transfer-pricing fees 6 Expenses: 7 Variable: 8 Audit hours provided by Audit Division 216,000.00 216,000.00 9 Tax hours provided by Tax Division 283,500.00 283,500.00 10 Excess capacity hours paid to salaried staff 11 Audit hours provided by Tax Division 12 Fixed expenses 50,000.00 65,500.00 115,500.00 13 Income from operations before service department charges 14 Service department charges for payroll 15 Income from operations

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Mr. Bailey asks that you prepare Divisional Income Statements showing what 20Y1 results would have been had the Audit Division purchased all the excess capacity of the Tax Division, using a negotiated transfer price. The divisional managers tell you that, with the excess capacity of the Tax Division of 800 hours, the Audit Division can perform 4 more audits during the year, and the Audit Division would agree to a negotiated rate of $80.00 per hour to be paid to the Tax Division for the additional hours required, with the Tax Division selling all its excess capacity to the Audit Division. The Tax Division would still be responsible for paying the salaries of their employees.

Complete the following Income Statements. Enter all amounts as positive numbers. If there is no amount or an amount is zero, enter “0”.

BOR CPAs, Inc.

Income Statements

For the Year Ended December 31, 20Y1

1		Audit Division	Tax Division	Total Company
2	Fees earned:
3	Audit fees (16 engagements)	$1,200,000.00		$1,200,000.00
4	Tax fees (45 engagements)		$708,750.00	708,750.00
5	Transfer-pricing fees
6	Expenses:
7	Variable:
8	Audit hours provided by Audit Division	216,000.00		216,000.00
9	Tax hours provided by Tax Division		283,500.00	283,500.00
10	Excess capacity hours paid to salaried staff
11	Audit hours provided by Tax Division
12	Fixed expenses	50,000.00	65,500.00	115,500.00
13	Income from operations before service department charges
14	Service department charges for payroll
15	Income from operations

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