1. Melanie Mielke Construction Corporation is considering the appropriate accounting for two unrelated events during the year. The first event related to the effects of a labor strike that resulted in a work stoppage on a major construction project. $2,000,000 of building material that was left exposed to weather conditions during the strike was lost. The second event was a $3,000,000 unrealized gain on available-for-sale securities that continue to be held as an investment.
Melanie Mielke's annual sales were $9,000,000, at a gross margin of 15%. Selling expenses totaled $300,000, and administrative expenses totaled $800,000. Mielke is subject to a 30% income tax rate.
Prepare the 20XX income statement for Melanie Mielke Construction Corporation.
2. The accountant for Rimmerex Corporation used a spreadsheet to prepare information needed to prepare the statement of cash flows for the year ending December 31, 20X5. However, the data were accidentally sorted alphabetically into the following listing of items. To compound the problem, the "add" and "subtract" notations for each line item were also deleted. Review the information, and prepare a correct presentation, using the indirect approach. The beginning cash balance was $63,800, and the ending cash balance was $415,000.
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Bought building by issuing common stock
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$850,000
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Decrease in accounts payable
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34,000
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Decrease in accounts receivable
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21,000
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Depreciation expense
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68,000
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Dividends on common
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50,000
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Gain on sale of land
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20,000
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Increase in income taxes payable
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7,000
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Increase in inventory
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27,800
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Increase in prepaid insurance
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3,000
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Net income
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215,000
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Purchase of equipment
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75,000
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Repayment of long-term note payable
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180,000
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Sale of land
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430,000
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3. Ashley Corporation provided the following list of cost data related to its manufacturing operations for the month of September 20X4.
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Beginning raw materials inventory
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$966,400
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Raw materials purchased (net)
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2,345,500
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Ending raw materials inventory
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818,200
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Direct labor costs
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322,300
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Indirect materials
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125,500
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Indirect labor
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88,900
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Factory utilities and maintenance
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456,000
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Factory depreciation
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56,600
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Other factory related overhead
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24,400
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Beginning work in process
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777,000
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Ending work in process
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717,000
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(a) Arrange the cost data into a statement of cost of goods manufactured.
(b) If Ashley's cost of goods sold for the month was $4,000,000, how much was the increase or decrease in finished goods inventory for the month of September?
4. Bright Eyes manufactures and sells two products. The first product is a disposable contact lens set that lasts about 3 months. The second product is a wetting solution. Customers of the first product use one bottle of solution each month. As a result, bottles of solution outsell lens sets by a 3:1 ratio. Lens sets sell for $36 per set, and have a contribution margin ratio of 50%. The solution sells for $6 per bottle, but only generates variable costs of $1. The company's total fixed costs are $9,900,000.
(a) What level of total sales is necessary to achieve break even?
(b) If a competitor began selling a wetting solution that forced Bright Eyes to reduce the price for its solution to $3 (to maintain market share and the 3:1 ratio of solution to lens), how many lens sets must be sold for the company to break even?