ACCOUNTING

39. Compute the activity rates (ie, cost per unit of activity) for the Installing Floors and Job

Support activity cost pools by filling in the table below:

Production overhead Installing

Floors

Job

Support

Total Overhead Costs

Activity Description

Amount of Activity

Activity Rate

Ofice Expenses Installing

Floors

Job

Support

Total Overhead Costs

Activity Description

Amount of Activity

Activity Rate

Installing

Floors

Job

Support

Total Activity Rate

40. Compute the overhead cost, according to the activity- based costing system, of a job that

involves installing 850 squares. Show all computations:

6

41. (24 points) Bedrosian Incorporated has a short-term line of credit from the Belmont National

Bank that is due to be renewed on February 1. The bank has requested the company’s current

Income Statement and Comparative Statements of Financial Position that appear below

(Chapter 16).

The company’s accounting staff has gathered the following industry averages for the ratios

from various sources.

Industry Averages

Return on total assets 6.4%

Return on common shareholders’ equity………….. 12.5%

Current ratio……………………………………….. 1.86:1

Acid-test (quick) ratio……………………………… 0.85:1

Days Sales in Receivables…………………………

Inventory Turnover…………………………………

Debt-to-equity ratio………………………………..

25 Days

15 Times

1.23:1

Times interest earned ratio………………………… 7.78:1

Dividend payout ratio……………………………… 39.6%

Bedrosian Incorporated

Income Statement

Year Ended December 31

(in thousands)

Revenue:

Sales…………………………………………………………. $60,000

Other………………………………………………………… 4,500

Total revenue…………………………………………………… 64,500

Expenses:

Cost of goods sold…………………………………………… 40,500

Selling and administrative…………………………………… 11,625

Depreciation and amortization……………………………… 1,875

Interest………………………………………………………. 1,500

Total expenses………………………………………………….. 55,500

Income before income taxes……………………………………. 9,000

Income taxes……………………………………………………. 3,600

Net income……………………………………………………… 5,400

Less: Dividends to common shareholders ($3.86 per share)…. 2,550

Net income added to retained earnings………………………… 2,850

Retained earnings, beginning of year…………………………… 8,550

Retained earnings, end of year…………………………………. $11,400

Earnings per share……………………………………………… $8.18

7

Bedrosian Incorporated

Statement of Financial Position

As of December 31

(in thousands)

This Year Last Year

Assets

Current assets:

Cash and marketable securities…………. $ 1,950 $ 1,575

Accounts receivable, net………………….. 3,600 3,750

Inventories………………………………… 4,875 4,650

Prepaid items……………………………… 375 225

Total current assets…………………………… 10,800 10,200

Noncurrent assets:

Investments, at cost……………………….. 7,950 7,950

Deposits…………………………………… 750 600

Property, plant, and equipment…………… 21,000 19,500

Total assets…………………………………… $40,500 $38,250

Liabilities and Shareholders’ Equity

Current liabilities:

Short-term loans…………………………… $ 1,650 $ 1,800

Accounts payable…………………………. 5,400 5,325

Salaries and wages payable………………. 1,950 2,025

Total current liabilities……………………….. 9,000 9,150

Long-term debt………………………………. 12,000 12,825

Total liabilities……………………………….. 21,000 21,975

Shareholders’ equity:

Common stock, at par…………………….. 3,300 3,150

Paid-in capital in excess of par…………… 4,800 4,575

Total paid-in capital………………………. 8,100 7,725

Retained earnings…………………………. 11,400 8,550

Total shareholders’ equity…………………… 19,500 16,275

Total liabilities and shareholder’s equity……. $40,500 $38,250

8

Required:

A. Would you recommend renewing the Line of Credit for Bedrosian? Support

your recommendation with an analysis of at least 4 ratios (show calculations).

Z

9

Example of an investment time line.

Investment of $100,000 that returns $20,000 a year for five years

20,000 20,000 20,000 20,000 20,000

(100,000)

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