MULTIPLE CHOICE
1. In comparing financial and management accounting, which of the following more accurately describes management accounting information? (Points : 1)
2. One major difference between financial and management accounting is that _______. (Points : 1)
3. Which of the following is not a valid method for determining product cost? (Points : 1)
4. Cost accounting is directed toward the needs of _______. (Points : 1)
5. Financial accounting _______. (Points : 1)
6. Which of the following statements is true? (Points : 1)
7. Which of the following statements is false? (Points : 1)
8. The set of processes that convert inputs into services and products that consumers use is called _______. (Points : 1)
9. The balanced scorecard perspective that focuses on using a firm's intellectual capital to adapt to customer needs through product or service innovations is the ________. (Points : 1)
10. The world has essentially become smaller because of _______. (Points : 1)
11. The term "relevant range" as used in cost accounting means the range over which ______. (Points : 1)
12. When cost relationships are linear, total variable prime costs will vary in proportion to changes in ______. (Points : 1)
13. An example of a fixed cost is _______. (Points : 1)
14. A(n) ____ cost increases or decreases in intervals as activity changes. (Points : 1)
15. When the number of units manufactured increases, the most significant change in unit cost will be reflected as a(n) ________. (Points : 1)
16. A cost driver _______. (Points : 1)
17. Product costs are deducted from revenue _______. (Points : 1)
18. Which of the following is not a product cost component? (Points : 1)
19. Davis Company manufacturers desks. The beginning balance of Raw Material Inventory was $4,500; raw material purchases of $29,600 were made during the month. At month end, $7,700 of raw material was on hand. Raw material used during the month was _______. (Points : 1)
20. Urban Company manufacturers tables. If raw material used was $80,000 and Raw Material Inventory at the beginning and end of the period, respectively, was $17,000 and $21,000, what was amount of raw material was purchased? (Points : 1)
Click here for the solution: 1. In comparing financial and management accounting, which of the following more accurately describes management accounting information? (Points : 1)
Showing posts with label Management. Show all posts
Showing posts with label Management. Show all posts
Wednesday, April 13, 2016
The management of Sharrar Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity
The management of Sharrar Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company’s controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 45,000 machine- hours. In addition, capacity is 52,000 machine-hours and the actual activity for the year is 47,100 machine-hours. All of the manufacturing overhead is fixed and is $1,029,600 per year. For simplicity, it’s assumed that this is the esti- mated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year.
Required:
A. Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base.
B. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.
C. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.
D. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.
Click here for the solution: The management of Sharrar Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity
Required:
A. Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base.
B. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the estimated amount of the allocation base.
C. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.
D. Determine the underapplied or overapplied overhead for the year if the predetermined overhead rate is based on the amount of the allocation base at capacity.
Click here for the solution: The management of Sharrar Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity
Tuesday, April 12, 2016
Ethics Case: It is the responsibility of management to apply accounting standards when communicating with investors and creditors through financial statements
Ethics Case 1-8 The auditors’ responsibility
It is the responsibility of management to apply accounting standards when communicating with investors and creditors through financial statements. Another group, auditors, serves as an independent intermediary to help ensure that management has in fact appropriately applied GAAP in preparing the company's financial statements. Auditors examine (audit) financial statements to express a professional, independent opinion. The opinion reflects the auditors' assessment of the statements' fairness, which is determined by the extent to which they are prepared in compliance with GAAP.
Some feel that it is impossible for an auditor to give an independent opinion on a company's financial statement because the auditors' fees for performing the audit are paid for by the company. In addition to the audit fee, quite often the auditor performs other services for the company such as preparing the company's income tax returns.
How might an auditor's ethics be challenged while performing an audit?
Click here for the solution: Ethics Case: It is the responsibility of management to apply accounting standards when communicating with investors and creditors through financial statements
It is the responsibility of management to apply accounting standards when communicating with investors and creditors through financial statements. Another group, auditors, serves as an independent intermediary to help ensure that management has in fact appropriately applied GAAP in preparing the company's financial statements. Auditors examine (audit) financial statements to express a professional, independent opinion. The opinion reflects the auditors' assessment of the statements' fairness, which is determined by the extent to which they are prepared in compliance with GAAP.
Some feel that it is impossible for an auditor to give an independent opinion on a company's financial statement because the auditors' fees for performing the audit are paid for by the company. In addition to the audit fee, quite often the auditor performs other services for the company such as preparing the company's income tax returns.
How might an auditor's ethics be challenged while performing an audit?
Click here for the solution: Ethics Case: It is the responsibility of management to apply accounting standards when communicating with investors and creditors through financial statements
Wednesday, November 11, 2015
The management of Idaho Produce is considering an increase in its use of financial leverage
16-10A. (Analysis of recessionary cash flows) The management of Idaho Produce is considering an increase in its use of financial leverage. The proposal on the table is to sell $10 million of bonds that would mature in 20 years. The interest rate on these bonds would be 15 percent. The bond issue would have a sinking fund attached to it requiring that one-twentieth of the principal be retired each year. Most business economists are forecasting a recession that will affect the entire economy in the coming year. Idaho’s management has been saying, “If we can make it through this, we can make it through anything.” The firm prefers to carry an operating cash balance of $1 million. Cash collections from sales next year will total $4 million. Miscellaneous cash receipts will be $300,000. Raw material payments will be $800,000. Wage and salary costs will total $1.4 million on a cash basis. On top of this, Idaho will experience nondiscretionary cash outflows of $1.2 million including all tax payments. The firm faces a 50 percent tax rate.
a. At present, Idaho is unlevered. What will be the total fixed financial charges the firm must pay next year?
b. If the bonds are issued, what is your forecast for the firm’s expected cash balance at the end of the recessionary year (next year)?
c. As Idaho’s financial consultant, do you recommend that it issue the bonds?
Click here for the solution: The management of Idaho Produce is considering an increase in its use of financial leverage
a. At present, Idaho is unlevered. What will be the total fixed financial charges the firm must pay next year?
b. If the bonds are issued, what is your forecast for the firm’s expected cash balance at the end of the recessionary year (next year)?
c. As Idaho’s financial consultant, do you recommend that it issue the bonds?
Click here for the solution: The management of Idaho Produce is considering an increase in its use of financial leverage
Tuesday, November 10, 2015
The primary objective of auditing is to add credibility to the financial statements prepared by management
AUDITING - True or False / Multiple Choice / Matching Type
1. The primary objective of auditing is to add credibility to the financial statements prepared by management. True or False
2. Auditing is not possible in the absence of verifiable data. True or False
3. Compliance with “Statements on Auditing Standards” is mandatory for all auditors. True or False
4. The training called for by the first general standard comes solely from practical experience. True or False
5. The second general standard likens the auditor’s role in an audit to the role of an attorney in a legal case. True or False
6. The susceptibility of an assertion to a material misstatement, assuming that there are no controls, is: (Multiple Choice)
7. The risk that the auditor may unknowingly fail to appropriately modify his or her opinion on financial statements that are materially misstated is: (Multiple Choice)
8. The risk that a material misstatement that could occur in an assertion will not be prevented or detected on a timely basis by the entity’s internal controls is: (Multiple Choice)
9. The least costly form of testing is usually: (Multiple Choice)
10. In practice, the use of analytical procedures has proven to be: (Multiple Choice)
11. Assume the preliminary audit strategy was based on a planned assessed level of control risk at a low level. Based on the final assessed level of control risk, the auditor would need to move substantive tests from interim to year-end and increase the extent of tests of details in order to accommodate a lower acceptable level of detection risk if: (Multiple Choice)
12. Tests of details of transactions generally use evidence from: (Multiple Choice)
13. The auditor would prepare a bank reconciliation using the bank statement obtained from the client and verify major reconciling items and mathematical accuracy when detection risk is: (Multiple Choice)
REQUIRED: For the following specific audit procedures, indicate the assertion that is being tested. Use the following letters, placing your response in the space provided.
A. Existence or occurrence
B. Completeness
C. Valuation or allocation
D. Rights and obligations
E. Presentation and disclosure
14. Examine consignment agreements.
15. Examine check register for the month following year end for disbursements relating to the audit period.
16. Select high dollar items from the perpetual inventory records for inspection/counting during the physical inventory.
17. Select vendor accounts with high activity during the year, and low balance at year-end for confirmation.
18. Examine vehicle registration forms to determine the registered owner.
19. Measuring the amount of monetary errors in transactions and balances is a primary purpose of substantive tests. True or False
20. The extent of substantive tests, in practice means the length of time during which substantive tests are to be performed. True or False
Click here for the solution: AUDITING - True or False / Multiple Choice / Matching Type
1. The primary objective of auditing is to add credibility to the financial statements prepared by management. True or False
2. Auditing is not possible in the absence of verifiable data. True or False
3. Compliance with “Statements on Auditing Standards” is mandatory for all auditors. True or False
4. The training called for by the first general standard comes solely from practical experience. True or False
5. The second general standard likens the auditor’s role in an audit to the role of an attorney in a legal case. True or False
6. The susceptibility of an assertion to a material misstatement, assuming that there are no controls, is: (Multiple Choice)
7. The risk that the auditor may unknowingly fail to appropriately modify his or her opinion on financial statements that are materially misstated is: (Multiple Choice)
8. The risk that a material misstatement that could occur in an assertion will not be prevented or detected on a timely basis by the entity’s internal controls is: (Multiple Choice)
9. The least costly form of testing is usually: (Multiple Choice)
10. In practice, the use of analytical procedures has proven to be: (Multiple Choice)
11. Assume the preliminary audit strategy was based on a planned assessed level of control risk at a low level. Based on the final assessed level of control risk, the auditor would need to move substantive tests from interim to year-end and increase the extent of tests of details in order to accommodate a lower acceptable level of detection risk if: (Multiple Choice)
12. Tests of details of transactions generally use evidence from: (Multiple Choice)
13. The auditor would prepare a bank reconciliation using the bank statement obtained from the client and verify major reconciling items and mathematical accuracy when detection risk is: (Multiple Choice)
REQUIRED: For the following specific audit procedures, indicate the assertion that is being tested. Use the following letters, placing your response in the space provided.
A. Existence or occurrence
B. Completeness
C. Valuation or allocation
D. Rights and obligations
E. Presentation and disclosure
14. Examine consignment agreements.
15. Examine check register for the month following year end for disbursements relating to the audit period.
16. Select high dollar items from the perpetual inventory records for inspection/counting during the physical inventory.
17. Select vendor accounts with high activity during the year, and low balance at year-end for confirmation.
18. Examine vehicle registration forms to determine the registered owner.
19. Measuring the amount of monetary errors in transactions and balances is a primary purpose of substantive tests. True or False
20. The extent of substantive tests, in practice means the length of time during which substantive tests are to be performed. True or False
Click here for the solution: AUDITING - True or False / Multiple Choice / Matching Type
Sunday, October 4, 2015
The management of Borealis Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier
ACC 560 Week 5 Assignment
P7-2A The management of Borealis Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called WISCO, is a component of the company's finished product.
The following information was collected from the accounting records and production data for the year ending December 31, 2008.
1. 7,000 units of WISCO were produced in the Machining Department.
2. Variable manufacturing costs applicable to the production of each WISCO unit were: direct materials $4.80, direct labor $4.30, indirect labor $0.43, utilities $0.40.
3. Fixed manufacturing costs applicable to the production of WISCO were:
Cost Item Direct Allocated
Depreciation $2,100 $ 900
Property taxes 500 200
Insurance 900 600
$3,500 $1,700
All variable manufacturing and direct fixed costs will be eliminated if WISCO is purchased. Allocated costs will have to be absorbed by other production departments.
4. The lowest quotation for 7,000 WISCO units from a supplier is $70,000.
5. If WISCO units are purchased, freight and inspection costs would be $0.40 per unit, and receiving costs totaling $1,250 per year would be incurred by the Machining Department.
Hint: Make incremental analysis related to make or buy, consider opportunity cost, and identify nonfinancial factors.
Instructions
(a) Prepare an incremental analysis for WISCO. Your analysis should have columns for (1) Make WISCO, (2) Buy WISCO, and (3) Net Income Increase/(Decrease).
(b) Based on your analysis, what decision should management make?
(c) Would the decision be different if Borealis Company has the opportunity to produce $5,000 of net income with the facilities currently being used to manufacture WISCO? Show computations.
(d) What nonfinancial factors should management consider in making its decision?
Click here for the solution: The management of Borealis Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier
P7-2A The management of Borealis Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called WISCO, is a component of the company's finished product.
The following information was collected from the accounting records and production data for the year ending December 31, 2008.
1. 7,000 units of WISCO were produced in the Machining Department.
2. Variable manufacturing costs applicable to the production of each WISCO unit were: direct materials $4.80, direct labor $4.30, indirect labor $0.43, utilities $0.40.
3. Fixed manufacturing costs applicable to the production of WISCO were:
Cost Item Direct Allocated
Depreciation $2,100 $ 900
Property taxes 500 200
Insurance 900 600
$3,500 $1,700
All variable manufacturing and direct fixed costs will be eliminated if WISCO is purchased. Allocated costs will have to be absorbed by other production departments.
4. The lowest quotation for 7,000 WISCO units from a supplier is $70,000.
5. If WISCO units are purchased, freight and inspection costs would be $0.40 per unit, and receiving costs totaling $1,250 per year would be incurred by the Machining Department.
Hint: Make incremental analysis related to make or buy, consider opportunity cost, and identify nonfinancial factors.
Instructions
(a) Prepare an incremental analysis for WISCO. Your analysis should have columns for (1) Make WISCO, (2) Buy WISCO, and (3) Net Income Increase/(Decrease).
(b) Based on your analysis, what decision should management make?
(c) Would the decision be different if Borealis Company has the opportunity to produce $5,000 of net income with the facilities currently being used to manufacture WISCO? Show computations.
(d) What nonfinancial factors should management consider in making its decision?
Click here for the solution: The management of Borealis Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier
Friday, September 18, 2015
The management discussion and Analysis section of an annual report addresses corporate performance for the year
The management discussion and Analysis section of an annual report
addresses corporate performance for the year, and sometimes uses
financial ratios to support its claims.
Address: www.ibm.com/investor/tools/index,phtml or go to www.wiley.com/college/wegandt
Steps
1. From IBM's Investor Tools, choose Investment Guides.
2. Choose Guide to Annual Reports.
3. Choose Anatomy of an Annual Report.
Instructions
Using the information from the above site, answers the following questions.
(a) What are the optional elements that are often included in an annual report?
(b) What are the elements of an annual report that are required by the SEC?
(c) Describe the contents of the Management Discussion.
(d) Describe the contents of the Auditors' Report.
(e) Describe the contents of the selected Financial Data.
Click here for the solution: The management discussion and Analysis section of an annual report addresses corporate performance for the year
Address: www.ibm.com/investor/tools/index,phtml or go to www.wiley.com/college/wegandt
Steps
1. From IBM's Investor Tools, choose Investment Guides.
2. Choose Guide to Annual Reports.
3. Choose Anatomy of an Annual Report.
Instructions
Using the information from the above site, answers the following questions.
(a) What are the optional elements that are often included in an annual report?
(b) What are the elements of an annual report that are required by the SEC?
(c) Describe the contents of the Management Discussion.
(d) Describe the contents of the Auditors' Report.
(e) Describe the contents of the selected Financial Data.
Click here for the solution: The management discussion and Analysis section of an annual report addresses corporate performance for the year
Tuesday, September 8, 2015
The following are selected portions of the report of management from a published annual report
Auditing P 6-21 The following are selected portions of the report of management from a published annual report.
Report of Management
Managements Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of its President and Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting in accordance with accounting principles generally accepted in the United States of America. Management evaluates the effectiveness of the Company’s internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Management, under the supervision and with participation of the Company’s president and Chief Executive Officer and Chief Financial Officer assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007 and concluded it is effective.
Management’s Responsibility for Consolidated Financial Statements
The management of Colgate-Palmolive Company is also responsible for the preparation and content of the accompanying consolidated financial statements as well as all other related information contained in this annual report. These financial statements have been prepared in conformity with accounting principles generally accepted in the United States, and necessarily include amounts which are based on management’s best estimates and judgments.
Required:
a. What are the purposes of the two parts of the report of management?
b. What is the auditors responsibility related to the report of management?
Click here for the solution: The following are selected portions of the report of management from a published annual report
Report of Management
Managements Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of its President and Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting in accordance with accounting principles generally accepted in the United States of America. Management evaluates the effectiveness of the Company’s internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Management, under the supervision and with participation of the Company’s president and Chief Executive Officer and Chief Financial Officer assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007 and concluded it is effective.
Management’s Responsibility for Consolidated Financial Statements
The management of Colgate-Palmolive Company is also responsible for the preparation and content of the accompanying consolidated financial statements as well as all other related information contained in this annual report. These financial statements have been prepared in conformity with accounting principles generally accepted in the United States, and necessarily include amounts which are based on management’s best estimates and judgments.
Required:
a. What are the purposes of the two parts of the report of management?
b. What is the auditors responsibility related to the report of management?
Click here for the solution: The following are selected portions of the report of management from a published annual report
Sunday, September 6, 2015
The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence
E11-18 (Impairment) The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $900,000 with depreciation to date of $400,000 as of December 31, 2007. On December 31, 2007, management projected its future net cash flows from this equipment to be $300,000 and its fair value to be $230,000. The company intends to use this equipment in the future.
Instructions
(a) Prepare the journal entry (if any) to record the impairment at December 31, 2007.
(b) Where should the gain or loss (if any) on the write-down be reported in the income statement?
(c) At December 31, 2008, the equipment’s fair value increased to $260,000. Prepare the journal entry (if any) to record this increase in fair value.
(d) What accounting issues did management face in accounting for this impairment?
Click here for the solution: The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence
Instructions
(a) Prepare the journal entry (if any) to record the impairment at December 31, 2007.
(b) Where should the gain or loss (if any) on the write-down be reported in the income statement?
(c) At December 31, 2008, the equipment’s fair value increased to $260,000. Prepare the journal entry (if any) to record this increase in fair value.
(d) What accounting issues did management face in accounting for this impairment?
Click here for the solution: The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence
How does a product's life cycle stage influence production cost management?
How does a product's life cycle stage influence production cost management?
Click here for the solution: How does a product's life cycle stage influence production cost management?
Click here for the solution: How does a product's life cycle stage influence production cost management?
Wednesday, September 2, 2015
In January 2010, the management of Noble Company concludes that it has sufficient cash to permit some short-term investments in debt and stock securities
P16-2A In January 2010, the management of Noble Company concludes that it has sufficient cash to permit some short-term investments in debt and stock securities. During the year, the following transactions occurred.
Feb. 1 Purchased 600 shares of Hiens common stock for $31,800, plus brokerage fees of $600.
Mar. 1 Purchased 800 shares of Pryce common stock for $20,000, plus brokerage fees of $400.
Apr. 1 Purchased 50 $1,000, 7% Roy bonds for $50,000, plus $1,000 brokerage fees. Interest is payable semiannually on April 1 and October 1.
July 1 Received a cash dividend of $0.60 per share on the Hiens common stock.
Aug. 1 Sold 200 shares of Hiens common stock at $58 per share less brokerage fees of $200.
Sept. 1 Received a $1 per share cash dividend on the Pryce common stock.
Oct. 1 Received the semiannual interest on the Roy bonds.
Oct. 1 Sold the Roy bonds for $50,000 less $1,000 brokerage fees.
At December 31, the fair value of the Hiens common stock was $55 per share. The fair value of the Pryce common stock was $24 per share.
Hint: Journalize investment transactions, prepare adjusting entry, and show statement presentation.
Instructions
(a) Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T-account form.)
Gain on stock sale $600
(b) Prepare the adjusting entry at December 31, 2010, to report the investment securities at fair value. All securities are considered to be trading securities.
(c) Show the balance sheet presentation of investment securities at December 31, 2010.
(d) Identify the income statement accounts and give the statement classification of each account.
Click here for the solution: In January 2010, the management of Noble Company concludes that it has sufficient cash to permit some short-term investments in debt and stock securities
Feb. 1 Purchased 600 shares of Hiens common stock for $31,800, plus brokerage fees of $600.
Mar. 1 Purchased 800 shares of Pryce common stock for $20,000, plus brokerage fees of $400.
Apr. 1 Purchased 50 $1,000, 7% Roy bonds for $50,000, plus $1,000 brokerage fees. Interest is payable semiannually on April 1 and October 1.
July 1 Received a cash dividend of $0.60 per share on the Hiens common stock.
Aug. 1 Sold 200 shares of Hiens common stock at $58 per share less brokerage fees of $200.
Sept. 1 Received a $1 per share cash dividend on the Pryce common stock.
Oct. 1 Received the semiannual interest on the Roy bonds.
Oct. 1 Sold the Roy bonds for $50,000 less $1,000 brokerage fees.
At December 31, the fair value of the Hiens common stock was $55 per share. The fair value of the Pryce common stock was $24 per share.
Hint: Journalize investment transactions, prepare adjusting entry, and show statement presentation.
Instructions
(a) Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T-account form.)
Gain on stock sale $600
(b) Prepare the adjusting entry at December 31, 2010, to report the investment securities at fair value. All securities are considered to be trading securities.
(c) Show the balance sheet presentation of investment securities at December 31, 2010.
(d) Identify the income statement accounts and give the statement classification of each account.
Click here for the solution: In January 2010, the management of Noble Company concludes that it has sufficient cash to permit some short-term investments in debt and stock securities
The management of Coker Corp. is doing a quick forecast of 20X9 using the modified percentage of sales method
The management of Coker Corp. is doing a quick forecast of 20X9 using the modified percentage of sales method in preparation for a more detailed planning exercise later in the month. The estimate is to assume a 10% growth in sales. All other line items are to be assumed to grow at the same rate except for fixed assets which is projected to increase by $88,000 due to an expansion program already underway. Approximate financial statements for the current year, 20X8, and a planning worksheet are shown below. The firm pays 9% interest on all of its debt. Assume the tax rate is a flat 25%. There are no plans for dividends or the sale of additional stock next year. Make a forecast of Coker’s complete income statement and balance sheet. Work to the nearest thousand dollars. (Hints: The easiest way to grow a number by 10% is to multiply it by 1.1 rather than taking 10% and adding. Do not grow subtotals. For example, to grow Revenue and COGS by 10%, round each to the nearest thousand and subtract for Gross Margin. Don’t grow interest, debt, or equity; use the debt/interest iteration technique.)
Click here for the solution: The management of Coker Corp. is doing a quick forecast of 20X9 using the modified percentage of sales method
Click here for the solution: The management of Coker Corp. is doing a quick forecast of 20X9 using the modified percentage of sales method
Saturday, August 22, 2015
Draft a management representations letter for Copley and Sons to submit to Cohen and Single LLP
Problem 11-29 Refer to Problem 11-28. Draft a management representations letter for Copley and Sons to submit to Cohen and Single LLP. The management representations letter should address all the points needed for both the financial statement and ICFR audits.
Click here for the solution: Draft a management representations letter for Copley and Sons to submit to Cohen and Single LLP
Click here for the solution: Draft a management representations letter for Copley and Sons to submit to Cohen and Single LLP
Monday, August 17, 2015
The management of Clare Co. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods
P6-7B The management of Clare Co. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2011, the accounting records show the following data.
Inventory, January 1 (10,000 units) $ 45,000
Cost of 100,000 units purchased 532,000
Selling price of 80,000 units sold 700,000
Operating expenses 140,000
Units purchased consisted of 35,000 units at $5.10 on May 10; 35,000 units at $5.30 on August 15; and 30,000 units at $5.60 on November 20. Income taxes are 30%.
Instructions
(a) Prepare comparative condensed income statements for 2011 under FIFO and LIFO. (Show computations of ending inventory.)
(b) Answer the following questions for management.
(1) Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why?
(2) Which inventory cost flow method produces the most meaningful net income? Why?
(3) Which inventory cost flow method is most likely to approximate actual physical flow of the goods? Why?
(4) How much additional cash will be available for management under LIFO than under
FIFO? Why?
(5) How much of the gross profit under FIFO is illusory in comparison with the gross profit under LIFO?
Click here for the solution: The management of Clare Co. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods
Inventory, January 1 (10,000 units) $ 45,000
Cost of 100,000 units purchased 532,000
Selling price of 80,000 units sold 700,000
Operating expenses 140,000
Units purchased consisted of 35,000 units at $5.10 on May 10; 35,000 units at $5.30 on August 15; and 30,000 units at $5.60 on November 20. Income taxes are 30%.
Instructions
(a) Prepare comparative condensed income statements for 2011 under FIFO and LIFO. (Show computations of ending inventory.)
(b) Answer the following questions for management.
(1) Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why?
(2) Which inventory cost flow method produces the most meaningful net income? Why?
(3) Which inventory cost flow method is most likely to approximate actual physical flow of the goods? Why?
(4) How much additional cash will be available for management under LIFO than under
FIFO? Why?
(5) How much of the gross profit under FIFO is illusory in comparison with the gross profit under LIFO?
Click here for the solution: The management of Clare Co. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods
Saturday, August 15, 2015
The management of Tritt Company has asked its accounting department
P8-7 (Financial Statement Effects of FIFO and LIFO) The management of Tritt Company has asked its accounting department to describe the effect upon the company's financial position and its income statements of accounting for inventories on the LIFO rather than the FIFO basis during 2010 and 2011. The accounting department is to assume that the change to LIFO would have been effective on January 1, 2010, and that the initial LIFO base would have been the inventory value on December 31, 2009. Presented below are the company's financial statements and other data for the years 2010 and 2011 when the FIFO method was employed.
Other data:
1. Inventory on hand at December 31, 2009, consisted of 40,000 units valued at $3.00 each.
2. Sales (all units sold at the same price in a given year):
2010—150,000 units @ $6.00 each
2011—180,000 units @ $7.50 each
3. Purchases (all units purchased at the same price in given year):
2010—150,000 units @ $3.50 each
2011—180,000 units @ $4.40 each
4. Income taxes at the effective rate of 40% are paid on December 31 each year.
Instructions
Name the account(s) presented in the financial statements that would have different amounts for 2011 if LIFO rather than FIFO had been used, and state the new amount for each account that is named.
Click here for the solution: The management of Tritt Company has asked its accounting department
Other data:
1. Inventory on hand at December 31, 2009, consisted of 40,000 units valued at $3.00 each.
2. Sales (all units sold at the same price in a given year):
2010—150,000 units @ $6.00 each
2011—180,000 units @ $7.50 each
3. Purchases (all units purchased at the same price in given year):
2010—150,000 units @ $3.50 each
2011—180,000 units @ $4.40 each
4. Income taxes at the effective rate of 40% are paid on December 31 each year.
Instructions
Name the account(s) presented in the financial statements that would have different amounts for 2011 if LIFO rather than FIFO had been used, and state the new amount for each account that is named.
Click here for the solution: The management of Tritt Company has asked its accounting department
Monday, August 3, 2015
You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country
Case 9-30 Master Budget with Supporting Schedules
EARRINGS UNLIMITED
Minimum ending cash balance $50,000
Selling price $10
Recent and forecast sales: January (actual) 20,000 February (actual) 26,000 March (actual) 40,000 April 65,000 May 100,000 June 50,000 July 30,000 August 28,000 September 25,000
Desired ending inventories (percentage 40% of next month's sales)
Cost of earrings 4
Purchases paid as follows: In month of purchase 50% In following month 50% Collection on sales: Sales collected current month 20% Sales collected following month 70% Sales collected 2nd month following 10% Variable monthly expenses: Sales commissions (% of sales) 4% Fixed monthly expenses:
Advertising 200,000
Rent 18,000
Salaries 106,000
Utilities 7,000
Insurance (12 months paid in November) 3,000
Depreciation 14,000
Equipment purchased in May 16,000
Equipment purchased in June 40,000
Dividends declared each quarter 15,000
Balance sheet at March 31:
Assets Cash $74,000
Accounts receivable 346,000
Inventory 104,000
Prepaid insurance 21,000
Property and equipment (net) 950,000
Total assets $1,495,000
Liabilities and Stockholders' Equity
Accounts payable $100,000
Dividends payable 15,000
Capital stock 800,000
Retained earnings 580,000
Total liabilities and stockholders' equity $1,495,000
Agreement with Bank:
Borrowing increments $1,000
Interest rate per month 1%
Repayment increments $1,000
Total of interest paid each quarter 100%
Required minimum cash balance $50,000
Required:
Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
1. a. A sales budget, by month and in total.
b. A schedule of expected cash collections from sales, by month and in total.
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
d. A schedule of expected cash disbursements for merchandise purchase, by month and in total.
2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.
3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.XX
Click here for the solution: You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country
EARRINGS UNLIMITED
Minimum ending cash balance $50,000
Selling price $10
Recent and forecast sales: January (actual) 20,000 February (actual) 26,000 March (actual) 40,000 April 65,000 May 100,000 June 50,000 July 30,000 August 28,000 September 25,000
Desired ending inventories (percentage 40% of next month's sales)
Cost of earrings 4
Purchases paid as follows: In month of purchase 50% In following month 50% Collection on sales: Sales collected current month 20% Sales collected following month 70% Sales collected 2nd month following 10% Variable monthly expenses: Sales commissions (% of sales) 4% Fixed monthly expenses:
Advertising 200,000
Rent 18,000
Salaries 106,000
Utilities 7,000
Insurance (12 months paid in November) 3,000
Depreciation 14,000
Equipment purchased in May 16,000
Equipment purchased in June 40,000
Dividends declared each quarter 15,000
Balance sheet at March 31:
Assets Cash $74,000
Accounts receivable 346,000
Inventory 104,000
Prepaid insurance 21,000
Property and equipment (net) 950,000
Total assets $1,495,000
Liabilities and Stockholders' Equity
Accounts payable $100,000
Dividends payable 15,000
Capital stock 800,000
Retained earnings 580,000
Total liabilities and stockholders' equity $1,495,000
Agreement with Bank:
Borrowing increments $1,000
Interest rate per month 1%
Repayment increments $1,000
Total of interest paid each quarter 100%
Required minimum cash balance $50,000
Required:
Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
1. a. A sales budget, by month and in total.
b. A schedule of expected cash collections from sales, by month and in total.
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
d. A schedule of expected cash disbursements for merchandise purchase, by month and in total.
2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.
3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.XX
Click here for the solution: You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country
Thursday, July 30, 2015
The Management of Russel Inc. is trying to decide whether it can increase its dividend
BE13-11 The Management of Russel Inc. is trying to decide whether it can increase its dividend. During the current year, it reported net income of $875,000. It had cash provided by operating activities of $643,000, paid cash dividends of $80,000, and had capital expenditures of $280,000.
Compute the company’s free cash flow, and discuss whether an increase in the dividend appears warranted. What other factors should be considered?
Click here for the solution: The Management of Russel Inc. is trying to decide whether it can increase its dividend
Compute the company’s free cash flow, and discuss whether an increase in the dividend appears warranted. What other factors should be considered?
Click here for the solution: The Management of Russel Inc. is trying to decide whether it can increase its dividend
The management of Thews Corporation is considering dropping product E28I
The management of Thews Corporation is considering dropping product E28I. Data from the company's accounting system appear below.
Sales $480,000
Variable Expenses $202,000
Fixed Manufacturing Expenses $158,000
Fixed Selling and Administrative Expenses $130,000
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $86,000 of the fixed manufacturing expenses and $67,000 of the fixed selling and administrative expenses are avoidable if product E28I is discontinued.
Required:
i. What is the net operating income earned by product E28I according to the company's accounting system? Show your work!
ii. What would be the effect on the company's overall net operating income of dropping product E28I? Should the product be dropped? Show your work!
Click here for the solution: The management of Thews Corporation is considering dropping product E28I
Sales $480,000
Variable Expenses $202,000
Fixed Manufacturing Expenses $158,000
Fixed Selling and Administrative Expenses $130,000
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $86,000 of the fixed manufacturing expenses and $67,000 of the fixed selling and administrative expenses are avoidable if product E28I is discontinued.
Required:
i. What is the net operating income earned by product E28I according to the company's accounting system? Show your work!
ii. What would be the effect on the company's overall net operating income of dropping product E28I? Should the product be dropped? Show your work!
Click here for the solution: The management of Thews Corporation is considering dropping product E28I
Sunday, July 12, 2015
The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods
P6-7A The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2008 the accounting records show these data.
Inventory, January 1 (10,000 Units) $35,000
Cost of 120,000 units purchased 504,500
Selling price of 100,000 units sold 665,000
Operating expenses 130,000
Units purchased consisted of 35,000 units at $4.00 on May 10; 60,000 units at $4.20 on August 15; and 25,000 units at $4.50 on November 20. Income taxes are 28%.
Instructions:
a. Prepare comparative condensed income statements for 2008 under FIFO and LIFO (show computations of ending inventory.)
b. Answer the following questions for management in the form of a business letter.
1. Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why?
2. Which inventory cost flow method produces the most meaningful net income? Why?
3. Which inventory cost flow method is most likely to approximate the actual physical flow of the goods? Why?
4. How much more cash will be available for management under LIFO than under FIFO? Why?
5. How much of the gross profit under FIFO is illusionary in comparison with the gross profit under LIFO?
Click here for the solution: The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods
Inventory, January 1 (10,000 Units) $35,000
Cost of 120,000 units purchased 504,500
Selling price of 100,000 units sold 665,000
Operating expenses 130,000
Units purchased consisted of 35,000 units at $4.00 on May 10; 60,000 units at $4.20 on August 15; and 25,000 units at $4.50 on November 20. Income taxes are 28%.
Instructions:
a. Prepare comparative condensed income statements for 2008 under FIFO and LIFO (show computations of ending inventory.)
b. Answer the following questions for management in the form of a business letter.
1. Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why?
2. Which inventory cost flow method produces the most meaningful net income? Why?
3. Which inventory cost flow method is most likely to approximate the actual physical flow of the goods? Why?
4. How much more cash will be available for management under LIFO than under FIFO? Why?
5. How much of the gross profit under FIFO is illusionary in comparison with the gross profit under LIFO?
Click here for the solution: The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods
Saturday, July 11, 2015
In January 2012, the management of Sarah Company concludes that it has sufficient cash to purchase some short-term investments in debt and stock securities
PE-2 In January 2012, the management of Sarah Company concludes that it has sufficient cash to purchase some short-term investments in debt and stock securities. During the year, the following transactions occurred.
Feb. 1 Purchased 1,200 shares of NJF common stock for $50,600 plus brokerage fees of $1,000.
Mar. 1 Purchased 500 shares of SEK common stock for $18,000 plus brokerage fees of $500.
Apr. 1 Purchased 70 $1,000, 8% CRT bonds for $70,000 plus $1,200 brokerage fees. Interest is payable semiannually on April 1 and October 1.
July 1 Received a cash dividend of $0.80 per share on the NJF common stock.
Aug. 1 Sold 200 shares of NJF common stock at $42 per share less brokerage fees of $350.
Sept. 1 Received $2 per share cash dividend on the SEK common stock.
Oct. 1 Received the semiannual interest on the CRT bonds.
Oct. 1 Sold the CRT bonds for $77,000 less $1,300 brokerage fees.
At December 31, the fair values of the NJF and SEK common stocks were $39 and $30 per share, respectively.
Instructions
(a) Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T account form.)
(b) Prepare the adjusting entry at December 31, 2012, to report the investments at fair value. All securities are considered to be trading securities.
(c) Show the balance sheet presentation of investment securities at December 31, 2012.
(d) Identify the income statement accounts and give the statement classification of each account.
Click here for the solution: In January 2012, the management of Sarah Company concludes that it has sufficient cash to purchase some short-term investments in debt and stock securities
Feb. 1 Purchased 1,200 shares of NJF common stock for $50,600 plus brokerage fees of $1,000.
Mar. 1 Purchased 500 shares of SEK common stock for $18,000 plus brokerage fees of $500.
Apr. 1 Purchased 70 $1,000, 8% CRT bonds for $70,000 plus $1,200 brokerage fees. Interest is payable semiannually on April 1 and October 1.
July 1 Received a cash dividend of $0.80 per share on the NJF common stock.
Aug. 1 Sold 200 shares of NJF common stock at $42 per share less brokerage fees of $350.
Sept. 1 Received $2 per share cash dividend on the SEK common stock.
Oct. 1 Received the semiannual interest on the CRT bonds.
Oct. 1 Sold the CRT bonds for $77,000 less $1,300 brokerage fees.
At December 31, the fair values of the NJF and SEK common stocks were $39 and $30 per share, respectively.
Instructions
(a) Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T account form.)
(b) Prepare the adjusting entry at December 31, 2012, to report the investments at fair value. All securities are considered to be trading securities.
(c) Show the balance sheet presentation of investment securities at December 31, 2012.
(d) Identify the income statement accounts and give the statement classification of each account.
Click here for the solution: In January 2012, the management of Sarah Company concludes that it has sufficient cash to purchase some short-term investments in debt and stock securities
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