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

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Answer 1

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 1, Problem 27PSA

a.

To determine

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

a.

Expert Solution

Answer to Problem 27PSA

Option 1

Calculation of income statement of Company CM is as follows:

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

Table (1)

Hence, the net income of Company CM is $20,000.

Calculation of balance sheet of Company CM is as follows:

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

Table (2)

Option 2

Calculation of income statement of Company CM is as follows:

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

Table (3)

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

Calculation of balance sheet of Company CM is as follows:

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

Table (4)

Explanation of Solution

Income statement:

It is the financial statement of a company that shows all the incomes earned and expenditures incurred by the company for a particular 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 =4000 units×$35=$140,000$

Hence, the sales revenue is $140,000.

(1)

Calculate the cost per unit:

$Cost per unit=Materials+Labor+Overheads Total number of units produced=$75,0005000 units=$15$

Hence, the cost per unit is $15.

Calculate the cost of goods sold:

$Cost of goods sold=Cost per unit×Number of goods sold=$15×4,000 units=$60,000$

Hence, the cost of goods sold is $60,000.

(2)

Calculate the total cash:

$Total cash=Acquired capital+Sales revenue−Product cost−Planning cost=$80,000+$140,000−$75,000−$60,000 =$220,000−135,000=$85,000$

Hence, the total cash is $85,000.

(3)

Calculate the total finished goods:

$Finished goods=Cost per unit×Completed goods−Number of goods sold=$15×5,000 units−4,000 units=$15×1,000 units=$15,000$

Hence, the finished goods is $15,000.

(4)

Calculate the cost per unit:

$Cost per unit=Materials+Labor+Overheads+Planning cost Total number of units produced=$75,000+$60,0005000 units=$135,0005000 units=$27$

Hence, the cost per unit is $27.

Calculate the cost of goods sold:

$Cost of goods sold=Cost per unit×Number of goods sold=$27×4,000 units=$108,000$

Hence, the cost of goods sold is $108,000.

(5)

Calculate the total finished goods:

$Finished goods=Cost per unit×Completed goods−Number of goods sold=$27×5,000 units−4,000 units=$27×1,000 units=$27,000$

Hence, the finished goods is $27,000.

(6)

b.

To determine

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

b.

Expert Solution

Answer to Problem 27PSA

Option 2 is the financial statement that gives a favorable impression to creditors and investors with a greater net income of $12,000 than option 1’s net income.

Explanation of Solution

Income statement:

Income statement is the financial statement of a company that shows all the incomes gained and expenditures incurred by the company for a time period.

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 the 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 a higher bonus.

c.

Expert Solution

Answer to Problem 27PSA

Option 2 provides the president with a higher bonus of $6,400.

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×20% on net income=$20,000×20%=$4,000$

Hence, the bonus received by the president under option 1 is $4,000.

Calculation of bonus under option 2 is as follows:

$Bonus=Net income×20% on net income=$32,000×20%=$6,400$

Hence, the bonus received by the president under option 2 is $6,400.

d.

To determine

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

d.

Expert Solution

Answer to Problem 27PSA

Option 1 minimizes the cost of income tax expenses for the company by $6,000.

Explanation of Solution

Calculation of income tax under option 1 is as follows:

$Bonus=Net income×30% income tax rate=$20,000×30%=$6,000$

Hence, the income tax expenses under option 1 is $6,000.

Calculation of income tax under option 2 is as follows:

$Bonus=Net income×30% income tax rate=$32,000×30%=$9,600$

Hence, the bonus received by the president under option 2 is $9,600

e.

To determine

Comment on the conflict among the company’s president as determined in requirement c and the owner-based requirement d, and define an incentive compensation plan that will neglect the conflict.

e.

Expert Solution

Explanation of Solution

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

Option 2 provides the president with a higher bonus of $6,400. Option 1 minimizes the cost of income tax expenses for the company by $6,000. 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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Answer 2

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 1, Problem 27PSA

a.

To determine

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

a.

Expert Solution

Answer to Problem 27PSA

Option 1

Calculation of income statement of Company CM is as follows:

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

Table (1)

Hence, the net income of Company CM is $20,000.

Calculation of balance sheet of Company CM is as follows:

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

Table (2)

Option 2

Calculation of income statement of Company CM is as follows:

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

Table (3)

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

Calculation of balance sheet of Company CM is as follows:

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

Table (4)

Explanation of Solution

Income statement:

It is the financial statement of a company that shows all the incomes earned and expenditures incurred by the company for a particular 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 =4000 units×$35=$140,000$

Hence, the sales revenue is $140,000.

(1)

Calculate the cost per unit:

$Cost per unit=Materials+Labor+Overheads Total number of units produced=$75,0005000 units=$15$

Hence, the cost per unit is $15.

Calculate the cost of goods sold:

$Cost of goods sold=Cost per unit×Number of goods sold=$15×4,000 units=$60,000$

Hence, the cost of goods sold is $60,000.

(2)

Calculate the total cash:

$Total cash=Acquired capital+Sales revenue−Product cost−Planning cost=$80,000+$140,000−$75,000−$60,000 =$220,000−135,000=$85,000$

Hence, the total cash is $85,000.

(3)

Calculate the total finished goods:

$Finished goods=Cost per unit×Completed goods−Number of goods sold=$15×5,000 units−4,000 units=$15×1,000 units=$15,000$

Hence, the finished goods is $15,000.

(4)

Calculate the cost per unit:

$Cost per unit=Materials+Labor+Overheads+Planning cost Total number of units produced=$75,000+$60,0005000 units=$135,0005000 units=$27$

Hence, the cost per unit is $27.

Calculate the cost of goods sold:

$Cost of goods sold=Cost per unit×Number of goods sold=$27×4,000 units=$108,000$

Hence, the cost of goods sold is $108,000.

(5)

Calculate the total finished goods:

$Finished goods=Cost per unit×Completed goods−Number of goods sold=$27×5,000 units−4,000 units=$27×1,000 units=$27,000$

Hence, the finished goods is $27,000.

(6)

b.

To determine

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

b.

Expert Solution

Answer to Problem 27PSA

Option 2 is the financial statement that gives a favorable impression to creditors and investors with a greater net income of $12,000 than option 1’s net income.

Explanation of Solution

Income statement:

Income statement is the financial statement of a company that shows all the incomes gained and expenditures incurred by the company for a time period.

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 the 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 a higher bonus.

c.

Expert Solution

Answer to Problem 27PSA

Option 2 provides the president with a higher bonus of $6,400.

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×20% on net income=$20,000×20%=$4,000$

Hence, the bonus received by the president under option 1 is $4,000.

Calculation of bonus under option 2 is as follows:

$Bonus=Net income×20% on net income=$32,000×20%=$6,400$

Hence, the bonus received by the president under option 2 is $6,400.

d.

To determine

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

d.

Expert Solution

Answer to Problem 27PSA

Option 1 minimizes the cost of income tax expenses for the company by $6,000.

Explanation of Solution

Calculation of income tax under option 1 is as follows:

$Bonus=Net income×30% income tax rate=$20,000×30%=$6,000$

Hence, the income tax expenses under option 1 is $6,000.

Calculation of income tax under option 2 is as follows:

$Bonus=Net income×30% income tax rate=$32,000×30%=$9,600$

Hence, the bonus received by the president under option 2 is $9,600

e.

To determine

Comment on the conflict among the company’s president as determined in requirement c and the owner-based requirement d, and define an incentive compensation plan that will neglect the conflict.

e.

Expert Solution

Explanation of Solution

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

Option 2 provides the president with a higher bonus of $6,400. Option 1 minimizes the cost of income tax expenses for the company by $6,000. 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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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 1, Problem 27PSA

a.

To determine

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

a.

Expert Solution

Answer to Problem 27PSA

Option 1

Calculation of income statement of Company CM is as follows:

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

Table (1)

Hence, the net income of Company CM is $20,000.

Calculation of balance sheet of Company CM is as follows:

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

Table (2)

Option 2

Calculation of income statement of Company CM is as follows:

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

Table (3)

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

Calculation of balance sheet of Company CM is as follows:

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

Table (4)

Explanation of Solution

Income statement:

It is the financial statement of a company that shows all the incomes earned and expenditures incurred by the company for a particular 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 =4000 units×$35=$140,000$

Hence, the sales revenue is $140,000.

(1)

Calculate the cost per unit:

$Cost per unit=Materials+Labor+Overheads Total number of units produced=$75,0005000 units=$15$

Hence, the cost per unit is $15.

Calculate the cost of goods sold:

$Cost of goods sold=Cost per unit×Number of goods sold=$15×4,000 units=$60,000$

Hence, the cost of goods sold is $60,000.

(2)

Calculate the total cash:

$Total cash=Acquired capital+Sales revenue−Product cost−Planning cost=$80,000+$140,000−$75,000−$60,000 =$220,000−135,000=$85,000$

Hence, the total cash is $85,000.

(3)

Calculate the total finished goods:

$Finished goods=Cost per unit×Completed goods−Number of goods sold=$15×5,000 units−4,000 units=$15×1,000 units=$15,000$

Hence, the finished goods is $15,000.

(4)

Calculate the cost per unit:

$Cost per unit=Materials+Labor+Overheads+Planning cost Total number of units produced=$75,000+$60,0005000 units=$135,0005000 units=$27$

Hence, the cost per unit is $27.

Calculate the cost of goods sold:

$Cost of goods sold=Cost per unit×Number of goods sold=$27×4,000 units=$108,000$

Hence, the cost of goods sold is $108,000.

(5)

Calculate the total finished goods:

$Finished goods=Cost per unit×Completed goods−Number of goods sold=$27×5,000 units−4,000 units=$27×1,000 units=$27,000$

Hence, the finished goods is $27,000.

(6)

b.

To determine

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

b.

Expert Solution

Answer to Problem 27PSA

Option 2 is the financial statement that gives a favorable impression to creditors and investors with a greater net income of $12,000 than option 1’s net income.

Explanation of Solution

Income statement:

Income statement is the financial statement of a company that shows all the incomes gained and expenditures incurred by the company for a time period.

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 the 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 a higher bonus.

c.

Expert Solution

Answer to Problem 27PSA

Option 2 provides the president with a higher bonus of $6,400.

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×20% on net income=$20,000×20%=$4,000$

Hence, the bonus received by the president under option 1 is $4,000.

Calculation of bonus under option 2 is as follows:

$Bonus=Net income×20% on net income=$32,000×20%=$6,400$

Hence, the bonus received by the president under option 2 is $6,400.

d.

To determine

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

d.

Expert Solution

Answer to Problem 27PSA

Option 1 minimizes the cost of income tax expenses for the company by $6,000.

Explanation of Solution

Calculation of income tax under option 1 is as follows:

$Bonus=Net income×30% income tax rate=$20,000×30%=$6,000$

Hence, the income tax expenses under option 1 is $6,000.

Calculation of income tax under option 2 is as follows:

$Bonus=Net income×30% income tax rate=$32,000×30%=$9,600$

Hence, the bonus received by the president under option 2 is $9,600

e.

To determine

Comment on the conflict among the company’s president as determined in requirement c and the owner-based requirement d, and define an incentive compensation plan that will neglect the conflict.

e.

Expert Solution

Explanation of Solution

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

Option 2 provides the president with a higher bonus of $6,400. Option 1 minimizes the cost of income tax expenses for the company by $6,000. 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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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 1, Problem 27PSA

a.

To determine

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

a.

Expert Solution

Answer to Problem 27PSA

Option 1

Calculation of income statement of Company CM is as follows:

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

Table (1)

Hence, the net income of Company CM is $20,000.

Calculation of balance sheet of Company CM is as follows:

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

Table (2)

Option 2

Calculation of income statement of Company CM is as follows:

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

Table (3)

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

Calculation of balance sheet of Company CM is as follows:

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

Table (4)

Explanation of Solution

Income statement:

It is the financial statement of a company that shows all the incomes earned and expenditures incurred by the company for a particular 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 =4000 units×$35=$140,000$

Hence, the sales revenue is $140,000.

(1)

Calculate the cost per unit:

$Cost per unit=Materials+Labor+Overheads Total number of units produced=$75,0005000 units=$15$

Hence, the cost per unit is $15.

Calculate the cost of goods sold:

$Cost of goods sold=Cost per unit×Number of goods sold=$15×4,000 units=$60,000$

Hence, the cost of goods sold is $60,000.

(2)

Calculate the total cash:

$Total cash=Acquired capital+Sales revenue−Product cost−Planning cost=$80,000+$140,000−$75,000−$60,000 =$220,000−135,000=$85,000$

Hence, the total cash is $85,000.

(3)

Calculate the total finished goods:

$Finished goods=Cost per unit×Completed goods−Number of goods sold=$15×5,000 units−4,000 units=$15×1,000 units=$15,000$

Hence, the finished goods is $15,000.

(4)

Calculate the cost per unit:

$Cost per unit=Materials+Labor+Overheads+Planning cost Total number of units produced=$75,000+$60,0005000 units=$135,0005000 units=$27$

Hence, the cost per unit is $27.

Calculate the cost of goods sold:

$Cost of goods sold=Cost per unit×Number of goods sold=$27×4,000 units=$108,000$

Hence, the cost of goods sold is $108,000.

(5)

Calculate the total finished goods:

$Finished goods=Cost per unit×Completed goods−Number of goods sold=$27×5,000 units−4,000 units=$27×1,000 units=$27,000$

Hence, the finished goods is $27,000.

(6)

b.

To determine

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

b.

Expert Solution

Answer to Problem 27PSA

Option 2 is the financial statement that gives a favorable impression to creditors and investors with a greater net income of $12,000 than option 1’s net income.

Explanation of Solution

Income statement:

Income statement is the financial statement of a company that shows all the incomes gained and expenditures incurred by the company for a time period.

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 the 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 a higher bonus.

c.

Expert Solution

Answer to Problem 27PSA

Option 2 provides the president with a higher bonus of $6,400.

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×20% on net income=$20,000×20%=$4,000$

Hence, the bonus received by the president under option 1 is $4,000.

Calculation of bonus under option 2 is as follows:

$Bonus=Net income×20% on net income=$32,000×20%=$6,400$

Hence, the bonus received by the president under option 2 is $6,400.

d.

To determine

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

d.

Expert Solution

Answer to Problem 27PSA

Option 1 minimizes the cost of income tax expenses for the company by $6,000.

Explanation of Solution

Calculation of income tax under option 1 is as follows:

$Bonus=Net income×30% income tax rate=$20,000×30%=$6,000$

Hence, the income tax expenses under option 1 is $6,000.

Calculation of income tax under option 2 is as follows:

$Bonus=Net income×30% income tax rate=$32,000×30%=$9,600$

Hence, the bonus received by the president under option 2 is $9,600

e.

To determine

Comment on the conflict among the company’s president as determined in requirement c and the owner-based requirement d, and define an incentive compensation plan that will neglect the conflict.

e.

Expert Solution

Explanation of Solution

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

Option 2 provides the president with a higher bonus of $6,400. Option 1 minimizes the cost of income tax expenses for the company by $6,000. 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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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 1, Problem 27PSA

a.

To determine

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

a.

Expert Solution

Answer to Problem 27PSA

Option 1

Calculation of income statement of Company CM is as follows:

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

Table (1)

Hence, the net income of Company CM is $20,000.

Calculation of balance sheet of Company CM is as follows:

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

Table (2)

Option 2

Calculation of income statement of Company CM is as follows:

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

Table (3)

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

Calculation of balance sheet of Company CM is as follows:

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

Table (4)

Explanation of Solution

Income statement:

It is the financial statement of a company that shows all the incomes earned and expenditures incurred by the company for a particular 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 =4000 units×$35=$140,000$

Hence, the sales revenue is $140,000.

(1)

Calculate the cost per unit:

$Cost per unit=Materials+Labor+Overheads Total number of units produced=$75,0005000 units=$15$

Hence, the cost per unit is $15.

Calculate the cost of goods sold:

$Cost of goods sold=Cost per unit×Number of goods sold=$15×4,000 units=$60,000$

Hence, the cost of goods sold is $60,000.

(2)

Calculate the total cash:

$Total cash=Acquired capital+Sales revenue−Product cost−Planning cost=$80,000+$140,000−$75,000−$60,000 =$220,000−135,000=$85,000$

Hence, the total cash is $85,000.

(3)

Calculate the total finished goods:

$Finished goods=Cost per unit×Completed goods−Number of goods sold=$15×5,000 units−4,000 units=$15×1,000 units=$15,000$

Hence, the finished goods is $15,000.

(4)

Calculate the cost per unit:

$Cost per unit=Materials+Labor+Overheads+Planning cost Total number of units produced=$75,000+$60,0005000 units=$135,0005000 units=$27$

Hence, the cost per unit is $27.

Calculate the cost of goods sold:

$Cost of goods sold=Cost per unit×Number of goods sold=$27×4,000 units=$108,000$

Hence, the cost of goods sold is $108,000.

(5)

Calculate the total finished goods:

$Finished goods=Cost per unit×Completed goods−Number of goods sold=$27×5,000 units−4,000 units=$27×1,000 units=$27,000$

Hence, the finished goods is $27,000.

(6)

b.

To determine

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

b.

Expert Solution

Answer to Problem 27PSA

Option 2 is the financial statement that gives a favorable impression to creditors and investors with a greater net income of $12,000 than option 1’s net income.

Explanation of Solution

Income statement:

Income statement is the financial statement of a company that shows all the incomes gained and expenditures incurred by the company for a time period.

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 the 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 a higher bonus.

c.

Expert Solution

Answer to Problem 27PSA

Option 2 provides the president with a higher bonus of $6,400.

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×20% on net income=$20,000×20%=$4,000$

Hence, the bonus received by the president under option 1 is $4,000.

Calculation of bonus under option 2 is as follows:

$Bonus=Net income×20% on net income=$32,000×20%=$6,400$

Hence, the bonus received by the president under option 2 is $6,400.

d.

To determine

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

d.

Expert Solution

Answer to Problem 27PSA

Option 1 minimizes the cost of income tax expenses for the company by $6,000.

Explanation of Solution

Calculation of income tax under option 1 is as follows:

$Bonus=Net income×30% income tax rate=$20,000×30%=$6,000$

Hence, the income tax expenses under option 1 is $6,000.

Calculation of income tax under option 2 is as follows:

$Bonus=Net income×30% income tax rate=$32,000×30%=$9,600$

Hence, the bonus received by the president under option 2 is $9,600

e.

To determine

Comment on the conflict among the company’s president as determined in requirement c and the owner-based requirement d, and define an incentive compensation plan that will neglect the conflict.

e.

Expert Solution

Explanation of Solution

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

Option 2 provides the president with a higher bonus of $6,400. Option 1 minimizes the cost of income tax expenses for the company by $6,000. 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.

Answer 6

Chapter 1, Problem 27PSA

a.

To determine

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

a.

Expert Solution

Answer to Problem 27PSA

Option 1

Calculation of income statement of Company CM is as follows:

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

Table (1)

Hence, the net income of Company CM is $20,000.

Calculation of balance sheet of Company CM is as follows:

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

Table (2)

Option 2

Calculation of income statement of Company CM is as follows:

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

Table (3)

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

Calculation of balance sheet of Company CM is as follows:

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

Table (4)

Explanation of Solution

Income statement:

It is the financial statement of a company that shows all the incomes earned and expenditures incurred by the company for a particular 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 =4000 units×$35=$140,000$

Hence, the sales revenue is $140,000.

(1)

Calculate the cost per unit:

$Cost per unit=Materials+Labor+Overheads Total number of units produced=$75,0005000 units=$15$

Hence, the cost per unit is $15.

Calculate the cost of goods sold:

$Cost of goods sold=Cost per unit×Number of goods sold=$15×4,000 units=$60,000$

Hence, the cost of goods sold is $60,000.

(2)

Calculate the total cash:

$Total cash=Acquired capital+Sales revenue−Product cost−Planning cost=$80,000+$140,000−$75,000−$60,000 =$220,000−135,000=$85,000$

Hence, the total cash is $85,000.

(3)

Calculate the total finished goods:

$Finished goods=Cost per unit×Completed goods−Number of goods sold=$15×5,000 units−4,000 units=$15×1,000 units=$15,000$

Hence, the finished goods is $15,000.

(4)

Calculate the cost per unit:

$Cost per unit=Materials+Labor+Overheads+Planning cost Total number of units produced=$75,000+$60,0005000 units=$135,0005000 units=$27$

Hence, the cost per unit is $27.

Calculate the cost of goods sold:

$Cost of goods sold=Cost per unit×Number of goods sold=$27×4,000 units=$108,000$

Hence, the cost of goods sold is $108,000.

(5)

Calculate the total finished goods:

$Finished goods=Cost per unit×Completed goods−Number of goods sold=$27×5,000 units−4,000 units=$27×1,000 units=$27,000$

Hence, the finished goods is $27,000.

(6)

Answer 7

Chapter 1, Problem 27PSA

a.

To determine

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

Answer 8

a.

Expert Solution

Answer to Problem 27PSA

Option 1

Calculation of income statement of Company CM is as follows:

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

Table (1)

Hence, the net income of Company CM is $20,000.

Calculation of balance sheet of Company CM is as follows:

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

Table (2)

Option 2

Calculation of income statement of Company CM is as follows:

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

Table (3)

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

Calculation of balance sheet of Company CM is as follows:

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

Table (4)

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Income statement:

It is the financial statement of a company that shows all the incomes earned and expenditures incurred by the company for a particular 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 =4000 units×$35=$140,000$

Hence, the sales revenue is $140,000.

(1)

Calculate the cost per unit:

$Cost per unit=Materials+Labor+Overheads Total number of units produced=$75,0005000 units=$15$

Hence, the cost per unit is $15.

Calculate the cost of goods sold:

$Cost of goods sold=Cost per unit×Number of goods sold=$15×4,000 units=$60,000$

Hence, the cost of goods sold is $60,000.

(2)

Calculate the total cash:

$Total cash=Acquired capital+Sales revenue−Product cost−Planning cost=$80,000+$140,000−$75,000−$60,000 =$220,000−135,000=$85,000$

Hence, the total cash is $85,000.

(3)

Calculate the total finished goods:

$Finished goods=Cost per unit×Completed goods−Number of goods sold=$15×5,000 units−4,000 units=$15×1,000 units=$15,000$

Hence, the finished goods is $15,000.

(4)

Calculate the cost per unit:

$Cost per unit=Materials+Labor+Overheads+Planning cost Total number of units produced=$75,000+$60,0005000 units=$135,0005000 units=$27$

Hence, the cost per unit is $27.

Calculate the cost of goods sold:

$Cost of goods sold=Cost per unit×Number of goods sold=$27×4,000 units=$108,000$

Hence, the cost of goods sold is $108,000.

(5)

Calculate the total finished goods:

$Finished goods=Cost per unit×Completed goods−Number of goods sold=$27×5,000 units−4,000 units=$27×1,000 units=$27,000$

Hence, the finished goods is $27,000.

(6)

Answer 13

b.

To determine

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

b.

Expert Solution

Answer to Problem 27PSA

Option 2 is the financial statement that gives a favorable impression to creditors and investors with a greater net income of $12,000 than option 1’s net income.

Explanation of Solution

Income statement:

Income statement is the financial statement of a company that shows all the incomes gained and expenditures incurred by the company for a time period.

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 the 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.

Answer 14

b.

To determine

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

Answer 15

b.

Expert Solution

Answer to Problem 27PSA

Option 2 is the financial statement that gives a favorable impression to creditors and investors with a greater net income of $12,000 than option 1’s net income.

Answer 16

b.

Expert Solution

Answer 17

b.

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Income statement:

Income statement is the financial statement of a company that shows all the incomes gained and expenditures incurred by the company for a time period.

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 the 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.

Answer 20

c.

To determine

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

c.

Expert Solution

Answer to Problem 27PSA

Option 2 provides the president with a higher bonus of $6,400.

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×20% on net income=$20,000×20%=$4,000$

Hence, the bonus received by the president under option 1 is $4,000.

Calculation of bonus under option 2 is as follows:

$Bonus=Net income×20% on net income=$32,000×20%=$6,400$

Hence, the bonus received by the president under option 2 is $6,400.

Answer 21

c.

To determine

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

Answer 22

c.

Expert Solution

Answer to Problem 27PSA

Option 2 provides the president with a higher bonus of $6,400.

Answer 23

c.

Expert Solution

Answer 24

c.

Expert Solution

Answer 25

Expert Solution

Answer 26

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×20% on net income=$20,000×20%=$4,000$

Hence, the bonus received by the president under option 1 is $4,000.

Calculation of bonus under option 2 is as follows:

$Bonus=Net income×20% on net income=$32,000×20%=$6,400$

Hence, the bonus received by the president under option 2 is $6,400.

Answer 27

d.

To determine

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

d.

Expert Solution

Answer to Problem 27PSA

Option 1 minimizes the cost of income tax expenses for the company by $6,000.

Explanation of Solution

Calculation of income tax under option 1 is as follows:

$Bonus=Net income×30% income tax rate=$20,000×30%=$6,000$

Hence, the income tax expenses under option 1 is $6,000.

Calculation of income tax under option 2 is as follows:

$Bonus=Net income×30% income tax rate=$32,000×30%=$9,600$

Hence, the bonus received by the president under option 2 is $9,600

Answer 28

d.

To determine

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

Answer 29

d.

Expert Solution

Answer to Problem 27PSA

Option 1 minimizes the cost of income tax expenses for the company by $6,000.

Answer 30

d.

Expert Solution

Answer 31

d.

Expert Solution

Answer 32

Expert Solution

Answer 33

Explanation of Solution

Calculation of income tax under option 1 is as follows:

$Bonus=Net income×30% income tax rate=$20,000×30%=$6,000$

Hence, the income tax expenses under option 1 is $6,000.

Calculation of income tax under option 2 is as follows:

$Bonus=Net income×30% income tax rate=$32,000×30%=$9,600$

Hence, the bonus received by the president under option 2 is $9,600

Answer 34

e.

To determine

Comment on the conflict among the company’s president as determined in requirement c and the owner-based requirement d, and define an incentive compensation plan that will neglect the conflict.

e.

Expert Solution

Explanation of Solution

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

Option 2 provides the president with a higher bonus of $6,400. Option 1 minimizes the cost of income tax expenses for the company by $6,000. 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.

Answer 35

e.

To determine

Comment on the conflict among the company’s president as determined in requirement c and the owner-based requirement d, and define an incentive compensation plan that will neglect the conflict.

Answer 36

e.

Expert Solution

Explanation of Solution

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

Option 2 provides the president with a higher bonus of $6,400. Option 1 minimizes the cost of income tax expenses for the company by $6,000. 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.