Indicate with the appropriate letter the nature of each situation described below

E 20-18 Classifying accounting changes

Indicate with the appropriate letter the nature of each situation described below

Type of change
PR change in principle reported retrospectively
PP change in principle reported prospectively
E change in estimate
EP change in estimate resulting from a change in principle
R change in reporting entity
N not an accounting change

1. Change from declining balance depreciation to straight-line
2. Change in the estimate useful life of office equipment
3. Technological advance that renders worthless a patent with an unamortized cost of $45,000.
4. Change from determining lower of cost or market for the inventories by the individual item approach to the aggregate approach.
5. Change from LIFO inventory costing to the weighted-average inventory costing.
6. Settling a lawsuit for less than the amount accrued previously as a loss contingency.
7. Including in the consolidated financial statements a subsidiary acquired several years earlier that was appropriately not included in previous years.
8. Change by the retail store from reporting bad debt expense on a pay-as-you-go basis to the allowance method.
9. A shift of certain manufacturing overhead cost to inventory that previously were expensed as incurred to more accurate measure cost of goods sold. (Either method is generally acceptable).
10. Pension plan assets for a defined benefit pension plan achieving a rate of return in excess of the amount anticipated.

Click here for the solution: Indicate with the appropriate letter the nature of each situation described below

In a decision analysis situation, which one of the following costs is not likely to contain a variable cost component?

MULTIPLE CHOICE

1) In a decision analysis situation, which one of the following costs is not likely to contain a variable cost component? (CMA adapted, 6/96)

2) You have been asked to help a student health center determine which costs will vary with the number of students who come to the health center. The health center employs one doctor, three nurses, and several other employees. How would you classify (1) the nurse's salary and (2) film and other materials used in radiology to give X-rays to students? The nurse’s salary would be considered a ______, while the film and other materials would be considered a ______.

3) Given the following information:
Sales $5,000
Fixed Expenses 2,000
Variable Expenses 1,750

What would expected net income be if the company experienced a 10 percent increase in fixed costs and 10 percent increase in sales volume?

4) Pete's Pizza Place wishes to determine which of its costs will vary with the number of pizzas made. The Pizza Place has four pizza makers and ten other employees who take orders from customers and perform other tasks. The four pizza makers and the other employees are paid an hourly wage. How would one classify (1) the wages paid to the pizza makers and other employees and (2) materials (e.g., cheeses, sauce, etc.) used to make the pizza? The employees’ wages would be considered a ______, while the materials to make the pizza are a ______.

5) Which of the following statements is (are) true?
(1). An asset is a cost that will be matched with revenues in a future accounting period.
(2). Opportunity costs are recorded as intangible assets in the current accounting period.

6) If the fixed costs for a product decrease and the variable costs (as a percentage of sales dollars) decrease, what will be the effect on the contribution margin ratio and the breakeven point respectively? The contribution margin ratio will _____ and the breakeven point will _____.

7) Which of the following activities would not be considered a value-added activity?

8) The development of just-in-time (JIT) methods of production focused on

9) The field of accounting that depends on generally accepted accounting principles (GAAP) is called

10) Inventoriable costs:


Click here for the solution: In a decision analysis situation, which one of the following costs is not likely to contain a variable cost component?

For each situation listed below, indicate by letter the appropriate qualitative characteristic(s) or accounting concept(s) applied

For each situation listed below, indicate by letter the appropriate qualitative characteristic(s) or accounting concept(s) applied. A letter may be used more than once, and more than one characteristic or concept may apply to a particular situation. Explain why you chose your answer.

1. Goodwill is recorded in the accounts only when it arises from the purchase of another entity at a price higher than the fair market value of the purchased entity's identifiable assets.
2. Land is valued at cost.
3. All payments out of petty cash are debited to Miscellaneous Expense.
4. Plant assets are classified separately as land or buildings, with an accumulated depreciation account for buildings.
5. Periodic payments of $1,500 per month for services of H. Hay, who is the sole proprietor of the company, are reported as withdrawals.
6. Small tools used by a large manufacturing firm are^ recorded as expenses when purchased.
7. Investments in equity securities are initially recorded at cost.
8. A retail store estimates inventory rather than taking a complete physical count for purposes of preparing monthly financial statements.
9. A note describing the company's possible liability in a lawsuit is included with the financial statements even though no formal liability exists at the balance sheet date.
10. Depreciation on plant assets is consistently computed each year by the straight-line method.

a) Understandability
b) Verifiability
c) Timeliness
d) Representational faithfulness
e) Neutrality
f) Relevance
g) Going concern
h) Economic entity
i) Historical cost
j) Measurability
k) Materiality
l) Comparability


Click here for the solution: For each situation listed below, indicate by letter the appropriate qualitative characteristic(s) or accounting concept(s) applied

For each individual situation, determine the amount that should be reported as cash

E7-2 (Determine Cash Balance) Presented below are a number of independent situations.

Instructions
For each individual situation, determine the amount that should be reported as cash. If the item(s) is not reported as cash, explain the rationale.

1. Checking account balance $925,000; certificate of deposit $1,400,000; cash advance to subsidiary of $980,000; utility deposit paid to gas company $180.

2. Checking account balance $600,000; an overdraft in special checking account at same bank as normal checking account of $17,000; cash held in a bond sinking fund $200,000; petty cash fund $300; coins and currency on hand $1,350.

3. Checking account balance $590,000; postdated check from customer $11,000; cash restricted due to maintaining compensating balance requirement of $100,000; certified check from customer $9,800; postage stamps on hand $620.

4. Checking account balance at bank $37,000; money market balance at mutual fund (has checking privileges) $48,000; NSF check received from customer $800.

5. Checking account balance $700,000; cash restricted for future plant expansion $500,000; short-term Treasury bills $180,000; cash advance received from customer $900 (not included in checking account balance); cash advance of $7,000 to company executive, payable on demand; refundable deposit of $26,000 paid to federal government to guarantee performance on construction contract.

Click here for the solution: At the end of 2010 Sorter Company has accounts receivable of $900,000 and an allowance for doubtful accounts of $40,000