Principles of Accounting

Manufacturing Costs - Elements 1. Materials – Basic resources or parts. Also known as raw materials – For cakes – eggs, ﬂour, water 2. Labor – Cost of wages paid to workers with direct contact with product and can be traced to product – For cakes – baker’s me 3. Overhead – Costs that can not be traced to speciﬁc products. Also known as indirect costs. Depreciaon, Rent, Taxes, Supervisory salaries, etc… – For cakes – use of oven and facilies 1-23 Material Costs – ﬂow of costs from Balance Sheet to Income Statement Inventory- Balance Sheet Raw Materials Cost of Goods Sold – Income Statement 1-24 purchase sale Labor Costs Production costs flow through Balance sheet and period expenses do not 1-25 Overhead Costs 2 types of Depreciaon Production costs flow through Balance sheet and period expenses do not 1-26 • start their manufacturing business • incur costs for manufacturing products • incur costs to run business • Sell inventory Pallo Company will.. 1-27 Pallo Manufacturing Company Transacons Event 1 Acquired additional $15,000 cash by issuing common stock. Event 2 Paid $2,000 for the materials that were used to make its products. All products started were completed during the period. Event 3 Paid $1,200 for salaries of selling and administrative employees. Event 4 Paid $3,000 for wages of production workers. Event 5 Paid $2,800 for furniture used in selling and administrative offices. Event 6 Recognized depreciation on office furniture purchased in Event 5. The furniture acquired on January 1 had a $400 estimated salvage value and a four-year useful life. The annual depreciation charge is $600 [($2,800 - $400)/4]. Event 7 Paid $4,500 for manufacturing equipment. Event 8 Recognized depreciation on equipment purchased in Event 7. The equipment acquired on January 1 had a $1,500 estimated salvage value and a three-year useful life. The annual depreciation charge is $1,000 [($4,500 - $1,500)/3]. Event 9 Sold inventory to customers for $7,500 cash. Event 10 The inventory sold in Event 9 cost $4,000 to make. Patillo Manufacturing Company experienced the following transactions: 1-28 Eﬀect on Financial Statements 1-29 Eﬀect on Financial Statements 1-30 Total Product Cost 1-31 Eﬀect on Financial Statements 1-32 Pallo Manufacturing Company Transacons Event 1 Acquired additional $15,000 cash by issuing common stock. Event 2 Paid $2,000 for the materials that were used to make its products. All products started were completed during the period. Event 3 Paid $1,200 for salaries of selling and administrative employees. Event 4 Paid $3,000 for wages of production workers. Event 5 Paid $2,800 for furniture used in selling and administrative offices. Event 6 Recognized depreciation on office furniture purchased in Event 5. The furniture acquired on January 1 had a $400 estimated salvage value and a four-year useful life. The annual depreciation charge is $600 [($2,800 - $400)/4]. Event 7 Paid $4,500 for manufacturing equipment. Event 8 Recognized depreciation on equipment purchased in Event 7. The equipment acquired on January 1 had a $1,500 estimated salvage value and a three-year useful life. The annual depreciation charge is $1,000 [($4,500 - $1,500)/3]. Event 9 Sold inventory to customers for $7,500 cash. Event 10 The inventory sold in Event 9 cost $4,000 to make. Patillo Manufacturing Company experienced the following transactions:

MGT | 45 | Principles of Accounting | lecture notes | Manufacturing Costs - Elements

MGT 45: Principles of Accounting Undergraduate, Summer II 2016 Tuesday and Thursday 11:00-1:50PM Wells Fargo Hall, Room 1N108 PROFESSOR : Joe Pecore EMAIL : jpecore@ucsd.edu OFFICE : Otterson Hall 2E119 OFFICE HOURS : Tuesday & Thursday 945AM-1045AM TEACHING ASSISTANT/TUTOR : Jenny Ngo EMAIL :  jpn002@ucsd.edu DESCRIPTION This course is intended to

MGT_45_Syllabus_Summer_II_2016.docx-MGT 45: Principles of Accounting Undergraduate,

MGT 45: Principles of Accounting Tuesday and Thursday 11:00-1:50PM Wells Fargo Hall, Room 1N108 Professor: Joe Pecore Summer Session 2 2016 http://www.bloomberg.com/live Chapter 16 Capital Inve$tment Analysis & The Time Value of Money McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. 1-2 Chapter 16 Evaluang Capital (or Long Term) Investment Decisions 1. Goal is to be equipped to evaluate and compare diﬀerent big $ investments 2. Very important and great skill to have in business 3. This skill and knowledge can also help you in your personal life – This informaon not only applies to business investments, but is applicable to buying a home, funding rerement, funding college educaon 4. We will learn some fancy ﬁnancial math 1-3 Chapter 16 Learning Objecves 1. Idenfy cash ﬂows associated with an investment opportunity. 2. Explain investor returns and apply it to capital investment decisions. 3. Explain me value of money and determine the present value of future cash ﬂows. 4. Determine and interpret the net present value of an investment opportunity. 5. Compare capital investment alternaves. 6. Determine and interpret the internal rate of return of an investment opportunity. 7. Determine the payback period for an investment opportunity. 8. Conduct a postaudit of a completed investment. 1-4 Learning Objecve 1 Idenfy cash ﬂows associated with a capital investment opportunity. 1-5 Capital Investment Decisions • Purchases of long-term operaonal assets are capital investments. • Capital investments are intended to provide value for more than one year and usually cost above a certain threshold of $ in a company. • Once a company purchases operaonal assets, it is commied to these investments for an extended period of me. • Companies have limited capital and should use it wisely 1-6 Measuring Investment Cash Flows- Oulows Cash Outﬂows Working Capital Requirement s Working Capital Requirement s Increases in Operating Expenses Increases in Operating Expenses Initial Investment Initial Investment 1-7 Measuring Investment Cash Flows- Inﬂows Cash Inﬂows Incremental Revenues Incremental Revenues Cost Saving s Cost Saving s Salvage Value Salvage Value Reduction in Working Capital Reduction in Working Capital 1-8 Learning Objecve 2 Explain the concept of investor returns and apply it to capital investment decisions. 1-9

MGT | 45 | Principles of Accounting | lecture notes | MGT 45: Principles of Accounti

Learning Objecve 1 Idenfy diﬀerent types of long-term operaonal assets and terminology 1-6 Tangible versus Intangible Assets • Tangible assets have a physical presence; they can be seen and touched. – Machines, Buildings • Intangible assets are rights or privileges. They cannot be seen or touched. – Patents, Franchises 1-7 Tangible Long-Term Assets - terminology 1. Property, Plant, and Equipment – Somemes called plant assets or ﬁxed assets. We depreciate these assets over their useful life. • Buildings, machines, vehicles, equipment 2. Natural Resources – Mineral deposits, oil and gas reserves, mber stands, coal mines, and stone quarries are some examples of natural resources. We deplete these assets over their useful life. 3. Land – Has an inﬁnite life and is not subject to depreciaon. Over me, these assets lose their money making ability and are depreciated or depleted. 1-8 Depreciaon – an accounng construct Depreciaon – The amount of a tangible asset’s cost that is allocated to expense on the income statement during an accounng period . • This means spreading the cost of the inial investment as an expense to the income statement over me as they presumably lose their proﬁt generang ability over me. • This increases expenses , lowers proﬁt and generates a tax beneﬁt for the company. • $1M asset example 1-9 Learning Objecve 2 Determine the cost of long-term operaonal assets. 1-10 Cost of Long-Term Assets Buildings & Equipment Buildings • Purchase price • Sales taxes • Title search and transfer document costs • Realtor’s and aorney’s fees • Remodeling costs Buildings • Purchase price • Sales taxes • Title search and transfer document costs • Realtor’s and aorney’s fees • Remodeling costs Equipment • Purchase price (less discounts) • Sales taxes • Delivery costs • Installaon costs • Costs to adapt to intended use Equipment • Purchase price (less discounts) • Sales taxes • Delivery costs • Installaon costs • Costs to adapt to intended use 1-11 Cost of Long-Term Assets Land Land • Purchase price • Sales taxes • Title search and transfer document costs • Realtor’s and aorney’s fees, • Costs of removal of old buildings • Grading costs Land • Purchase price • Sales taxes • Title search and transfer document costs • Realtor’s and aorney’s fees, • Costs of removal of old buildings • Grading costs 1-12 Cost of Long-Term Assets • Essenally the cost of procuring the asset and commissioning the asset. • Buying and making it operaonal • Essenally the cost of procuring the asset and commissioning the asset. • Buying and making it operaonal 1-13

MGT | 45 | Principles of Accounting | lecture notes | Learning Objecve 1 Idenfy di

a remaining useful life of two years and no expected salvage value. Assume straight-line depreciation. REQUIRED a. Determine the amount of additional depreciation expense Valley would recognize in 2012 and 2013 if the cost were capitalized in the Engine account. b. Determine the amount of expense Valley would recognize in 2012 and 2013 if the cost were recognized as maintenance expense. c. Determine the effect of the overhaul on cash flow from operating activities for 2012 and 2013 if the cost were capitalized and expensed through depreciation charges. d. Determine the effect of the overhaul on cash flow from operating activities for 2012 and 2013 if the cost were recognized as maintenance expense. Problem 6-3 TM Company began operations when it acquired $225,000 cash from the issue of common stock on January 1, 2011. The cash acquired was immediately used to purchase equipment for $225,000 that had a $45,000 salvage value and an expected useful life of four years. The equipment was used to produce the following revenue stream (assume all revenue transactions are for cash). At the beginning of the fifth year, the equipment was sold for $22,500 cash. KC uses straight-line depreciation. 2011 2012 2013 2014 2015 Revenue 42,000 $ 46,000 $ 48,000 $ 39,000 $ 0 REQUIRED Prepare income statements, balance sheets, and statements of cash flows for each of the five years. Problem 7-1 The following transactions apply to Mabry Equipment Sales Corp. for 2012: 1. The business was started when Mabry Corp. received $325,000 from the issue of common stock. 2. Purchased $950,000 of merchandise on account. 3. Sold merchandise for $1,200,000 cash (not including sales tax). Sales tax of 8% is collected when the merchandise is sold. The merchandise had a cost of $725,000 4. Provided a six-month warranty on the merchandise sold. Based on industry estimates, the warranty claims would amount to 4% of merchandise sales. 5. Paid the sales tax of 8% to the state agency on $800,000 of the sales. 6. On September 1, 2012, borrowed $125,000 from the local bank. The note had a 10% annual interest rate and matures on August 31, 2013. 7. Paid $32,000 for warranty repairs during the year. 8. Paid $310,000 cash in operating expenses for the year. 9. Paid $680,000 of accounts payable. 10. Recorded accrued interest payable at the end of the year. REQUIRED a. Record the above transactions in a horizontal statements model. b. Prepare the income statement, balance sheet, and statement of cash flows for 2012. c. What is the total amount of current liabilities at December 31, 2012? Problem 7-2 The following events apply to Norman Co. for fiscal 2012 and 2013 Borrowed $90,000 from the local bank on April 1, 2012, when the company was started. The note had an 8 percent annual interest rate and a one-year term to maturity. Recognized $235,000 of revenue on account in 2012. Recognized $315,000 of revenue on account in 2013. Collected $205,000 cash from accounts receivable in 2012. Collected $307,500 cash from accounts receivable in 2013. Paid $145,000 of salaries expense in 2012. Paid $172,500 of salaries expense in 2013. Paid the loan and interest at the maturity date. REQUIRED

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