Allen Labinski has prepared the following list of statements about process cost accounting

E3-1 Allen Labinski has prepared the following list of statements about process cost accounting. Identify each statement as true or false. If false, indicate how to correct the statement.

1. Process cost systems are used to apply costs to similar products that are mass-produced in a continuous fashion.
2. A process cost system is used when each finished unit is indistinguishable from another.
3. Companies that produce soft drinks, motion pictures, and computers chips would all use process cost accounting.
4. In a process cost system, costs are tracked by individual jobs.
5. Job order costing and process costing track different manufacturing costs elements.
6. Both job order costing and process costing account for direct materials, direct labor, and manufacturing overhead.
7. Costs flow through the accounts in the same basic way for both job order costing and process costing.
8. In a process cost system, only one work in process account is used.
9. In a process cost system, costs are summarized in a job cost sheet.
10. In a process cost system, the unit cost is total manufacturing costs for the period divided by the units produced during the period.

NOTE: Fill in the table below with your responses; write correction for false statements below the table:

Click here for the solution: Allen Labinski has prepared the following list of statements about process cost accounting

The following balance sheet was prepared by the bookkeeper for Purple Company as of December 31, 2011

2. (TCO D) The following balance sheet was prepared by the bookkeeper for Purple Company as of December 31, 2011

Purple Company
Balance Sheet
as of December 31, 2011
Cash $ 80,000 Accounts payable $ 75,000
Accounts receivable (net) 52,200 Long-term liabilities 100,000
Inventories 57,000 Stockholders' equity 218,500
Investments 76,300
Equipment (net) 96,000
Patents 32,000
$393,500 $393,500

The following additional information is provided:
(1) Cash includes the cash surrender value of a life insurance policy $12,000, and a bank overdraft of $2,500 has been deducted.
(2) The net accounts receivable balance includes:
(a) accounts receivable debit balances $60,000;
(b) accounts receivable 0;
(c) allowance for doubtful accounts $3,800.
(3) Inventories do not include goods costing $3,000 shipped out on consignment. Receivables of $3,000 were recorded on these goods.
(4) Investments include investments in common stock, trading $13,000 and available-for-sale $48,300, and franchises $15,000.
(5) Equipment costing $5,000 with accumulated depreciation $4,000 is no longer used and is held for sale. Accumulated depreciation on the other equipment is $40,000.
(6) An unrecorded liability was not recorded on the balance sheet of $2000. Instructions

Prepare a balance sheet in good form (stockholders' equity details can be omitted.)

Click here for the solution: The following balance sheet was prepared by the bookkeeper for Purple Company as of December 31, 2011

Griffin Company has prepared departmental overhead budgets for normal activity levels before allocations as follows

12-49 Direct and Step-Down Methods of Allocation

Griffin Company has prepared departmental overhead budgets for normal activity levels before allocations as follows:

Building and grounds $ 20,000
Personnel 1,200
General factory administration* 28,020
Cafeteria operating loss 1,430
Storeroom 2,750
Machining 35,100
Assembly 56,500
Total $145,000

*To be allocated before cafeteria.

Management has decided that the most sensible product costs are achieved by using departmental overhead rates. These rates are developed after allocating appropriate service department costs to production departments.

Cost-allocation bases for allocation are to be selected from the following data:
Square Feet of Direct-Labor Number of Floor Space Total Number of Department Hours Employees Occupied Labor Hours Requisitions
Building and grounds — — — — —
Personnel* — — 2,000 — —
General factory administration — 35 7,000 — —
Cafeteria operating loss — 10 4,000 1,000 —
Storeroom — 5 7,000 1,000 —
Machining 5,000 50 30,000 8,000 3,000
Assembly 15,000 100 50,000 17,000 1,500
20,000 200 100,000 27,000 4,500

*Basis used is number of employees.

1. Allocate service department costs by the step-down method. Develop overhead rates per direct labor hour for machining and assembly.
2. Same as in number 1, using the direct method.
3. What would be the plantwide factory-overhead application rate, assuming that direct-labor hours are used as a cost-allocation base?
4. Using the following information about two jobs, prepare three different total overhead costs for each job, using rates developed in numbers 1, 2, and 3.
Direct-Labor Hours
Machining Assembly
Job K10 19 2
Job K12 3 18

Click here for the solution: Griffin Company has prepared departmental overhead budgets for normal activity levels before allocations as follows

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

The following balance sheet was prepared by the bookkeeper for Blue Company as of December 31, 2011

The following balance sheet was prepared by the bookkeeper for Blue Company as of December 31, 2011

Blue Company
Balance Sheet
as of December 31, 2011

Cash $90,000
Accounts receivable (net) 42,000
Inventories 57,000
Equipment (net) 96,000
Patents 32,000
Sub-Total 393,500

Accounts payable 75,000
Long-term liabilities 100,000
Stockholders' equity 218,500
Sub-Total 393,500

The following additional information is provided:
1) Cash includes the cash surrender value of a life insurance policy $5,000 and a bank overdraft of $4,000 has been deducted.
2) The net accounts receivable balance includes:
a) Accounts receivable debit balances $50,000
b) Accounts receivable credit balances 0
c) Allowance for doubtful accounts 3,800
3) Inventories do not include goods costing $3,000 shipped out on consignment. Receivables of $3,000 were recorded on these goods.
4) Investments include investments in common stock, trading $13,000 and available-for-sale $46,300 and franchises $17,000

INSTRUCTIONS
Prepare a balance sheet in good form (Stockholders' equity details can be omitted)
Do not worry about balancing the statement but rather compute the account balances properly for presentation purposes.


Click here for the solution: The following balance sheet was prepared by the bookkeeper for Blue Company as of December 31, 2011

Jim Thome has prepared the following list of statements about bonds

ACC 291 Week 3 Assignment

E10-8 Jim Thome has prepared the following list of statements about bonds.

1. Bonds are a form of interest bearing notes payable.
2. When seeking long term financing, an advantage of issuing bonds over issuing common stock is that stockholder control is not affected.
3. When seeking long term financing, an advantage of issuing common stock over issuing bonds is that tax savings result.
4. Secured bonds have specific assets of the issuer pledged as collateral for the bonds.
5. Secured bonds are also known as debenture bonds.
6. Bonds that mature in installments are called term bonds.
7. A conversion feature may be added to bonds to make them more attractive to bond buyers.
8. The rate used to determine the amount of cash interest the borrower pays is called the stated rate.
9. Bond prices are usually quoted as a percentage of the face value of the bond.
10. The present value of a bond is the value at which it should sell in the marketplace.

Instructions
Identify each statement above as true or false. If false, indicate how to correct the statement.


Click here for the solution: Jim Thome has prepared the following list of statements about bonds

The following is an auditor's report prepared in accordance with International Standards on Auditing (ISAs)

Auditing P 3-33 The following is an auditor's report prepared in accordance with International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB):

Independent Auditor's Report

To the Shareholders of Les Meridian, Inc.

We have audited the accompanying financial statements of Les Meridian, Inc,. which comprise the balance sheet as of December 31, 2009, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary significant accounting policies and other explanatory notes.

AND SO ON


Required:
a. For each of the seven distinct parts of the standard unqualified report prepared in accordance with generally accepted auditing standards in the United States, describe whether key elements of each of those seven parts are present in hte audit report based on International Standards on Auditing for Les Meridian's financial statements.
b. Describe elements in the audit report based on International Standards on Auditing that are more extensive than an audit report based on US auditing standards.


Click here for the solution: The following is an auditor's report prepared in accordance with International Standards on Auditing (ISAs)

The ledger of Chopin Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared

E3-5 (Adjusting Entries) The ledger of Chopin Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared.

Debit Credit
Prepaid Insurance $ 3,600
Supplies 2,800
Equipment 25,000
Accumulated Depreciation—Equipment $ 8,400
Notes Payable 20,000
Unearned Rent Revenue 6,300
Rent Revenue 60,000
Interest Expense –0–
Wage Expense 14,000

An analysis of the accounts shows the following.
1. The equipment depreciates $250 per month.
2. One-third of the unearned rent was earned during the quarter.
3. Interest of $500 is accrued on the notes payable.
4. Supplies on hand total $650.
5. Insurance expires at the rate of $300 per month.

Instructions
Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are: Depreciation Expense; Insurance Expense; Interest Payable; and Supplies Expense. (Omit explanations.)

Click here for the solution: The ledger of Chopin Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared

South Co. at the end of 2010, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows

South Co. at the end of 2010, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:

Pretax financial income $ 420,000
Extra depreciation taken for tax purposes (1,050,000)
Estimated expenses deductible for taxes when paid 840,000
Taxable income $ 210,000

Use of the depreciable assets will result in taxable amounts of $350,000 in each of the next three years. The estimated litigation expenses of $840,000 will be deductible in 2013 when settlement is expected.

Instructions
(a) Prepare a schedule of future taxable and deductible amounts.
(b) Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2010, assuming a tax rate of 40% for all years.

Click here for the solution: South Co. at the end of 2010, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows

Final earnings estimates for Chilean Health Spa & Fitness Center have been prepared for the CFO of the company and are shown in the following table

(Dividend policies) Final earnings estimates for Chilean Health Spa & Fitness Center have been prepared for the CFO of the company and are shown in the following table. The firm has 7,500,000 shares of common stock outstanding. As assistant to the CFO, you are asked to determine the yearly dividend per share to be paid depending on the following possible policies:

YEAR PROFITS AFTER TAXES
1 $ 18,000,000
2 21,000,000
3 19,000,000
4 23,000,000
5 25,000,000

a. A stable dollar dividend targeted at 40 percent of earnings over a 5-year period
b. A small, regular dividend of $0.60 per share plus a year-end extra when the profits in any year exceed $20,000,000. The year-end extra dividend will equal 50 percent of profits exceeding $20,000,000.
c. A constant dividend payout ratio of 40 percent

Click here for the solution: Final earnings estimates for Chilean Health Spa & Fitness Center have been prepared for the CFO of the company and are shown in the following table

Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following factory overhead cost budget for the Welding Department for May 2012

Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following factory overhead cost budget for the Welding Department for May 2012. The company expected to operate the department at 100% of normal capacity of 7,000 hours.

Variable Costs:
Indirect factory wages $22,050
Power and light 12,600
Indirect Materials 10,500
Total Variable Cost $45,150
Fixed Costs:
Supervisory salaries $12,000
Depreciation of plant and equipment 31,450
Insurance and property taxes 9,750
Total fixed costs $53,200
Total factory overhead $98,350

During May, the department operated at 7,400 standard hours, and the factory overhead costs incurred were indirect factory wages, $23,580; power and light, $13,120; indirect materials, $11,310; supervisory salaries, $12,000; depreciation of plant and equipment, $31,450; and insurance and property taxes, $9,750.

Required:
Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 7,400 hours.

Click here for the solution: Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following factory overhead cost budget for the Welding Department for May 2012

The ledger of Duggan Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared

Exercise 3-5 (E3-5) (Adjusting Entries) The ledger of Duggan Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared.

Debit Credit
Prepaid Insurance $ 3,600
Supplies 2,800
Equipment 25,000
Accumulated Depreciation—Equipment $ 8,400
Notes Payable 20,000
Unearned Rent Revenue 9,300
Rent Revenue 60,000
Interest Expense –0–
Wage Expense 14,000
An analysis of the accounts shows the following.
1. The equipment depreciates $250 per month.
2. One-third of the unearned rent was earned during the quarter.
3. Interest of $500 is accrued on the notes payable.
4. Supplies on hand total $850.
5. Insurance expires at the rate of $300 per month.

Instructions
Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are: Depreciation Expense; Insurance Expense; Interest Payable; and Supplies Expense. (Omit explanations.)

Click here for the solution: The ledger of Duggan Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared

(Comprehensive Accounting Cycle Problem) The following trial balance was prepared for Gifts, Etc., Inc., on December 31, 2010, after the closing entries were posted

Problem 5-26 Comprehensive Accounting Cycle Problem (Uses Percent of Revenue Allowance Method)

The following trial balance was prepared for Gifts, Etc., Inc., on December 31, 2010, after the closing entries were posted.

AND SO ON

Required
a. Organize the transaction data in accounts under an accounting equation.
b. Prepare an income statement, a statement of changes in stockholders' equity, a balance sheet, and a statement of cash flows for 2011.

Check:
Net Income: $236,710
Total Assets: 1,142,950

Click here for the solution: (Comprehensive Accounting Cycle Problem) The following trial balance was prepared for Gifts, Etc., Inc., on December 31, 2010, after the closing entries were posted