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
Showing posts with label would. Show all posts
Showing posts with label would. Show all posts
Wednesday, April 13, 2016
Thursday, September 24, 2015
In a period when prices are rising and inventory quantities are stable, the inventory method that would result
MULTIPLE CHOICE
1. In a period when prices are rising and inventory quantities are stable, the inventory method that would result in the highest ending inventory is:
2. The use of LIFO during a long inflationary period can result in:
3. The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be:
4. The primary reason for the popularity of LIFO is that it gives:
5. When using the gross profit method to estimate ending inventory, it is not necessary to know:
6. Using the dollar-value LIFO retail method for inventory,:
7. Under the gross method, purchase discounts taken are:
8. In a periodic inventory system, the cost of inventories sold is:
9. An argument against the use of LCM is its lack of:
10. A retrospective treatment of prior years' financial statements is required when there is a change from:
Click here for the solution: In a period when prices are rising and inventory quantities are stable, the inventory method that would result
1. In a period when prices are rising and inventory quantities are stable, the inventory method that would result in the highest ending inventory is:
2. The use of LIFO during a long inflationary period can result in:
3. The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be:
4. The primary reason for the popularity of LIFO is that it gives:
5. When using the gross profit method to estimate ending inventory, it is not necessary to know:
6. Using the dollar-value LIFO retail method for inventory,:
7. Under the gross method, purchase discounts taken are:
8. In a periodic inventory system, the cost of inventories sold is:
9. An argument against the use of LCM is its lack of:
10. A retrospective treatment of prior years' financial statements is required when there is a change from:
Click here for the solution: In a period when prices are rising and inventory quantities are stable, the inventory method that would result
Wednesday, September 23, 2015
Would it be considered unusual to find debits to fixed assets coming from a journal entry source
1. Would it be considered unusual to find debits to fixed assets coming
from a journal entry source rather than a purchase journal? Explain.
2. Would it be normal to find entries to accumulated depreciation and depreciation expense to come from a journal entry source rather than another source?
3. Assume you were auditing FedEx and in your sample of debits to fixed assets, you find an entry for $500,000 with the following notation: "Capitalization of line capacity per CFO, amounts were originally in corrected recorded as an expense." Explain what you would do to complete the audit of this item. What evidence would you need to see to either corroborate or question the entry?
Click here for the solution: Would it be considered unusual to find debits to fixed assets coming from a journal entry source
2. Would it be normal to find entries to accumulated depreciation and depreciation expense to come from a journal entry source rather than another source?
3. Assume you were auditing FedEx and in your sample of debits to fixed assets, you find an entry for $500,000 with the following notation: "Capitalization of line capacity per CFO, amounts were originally in corrected recorded as an expense." Explain what you would do to complete the audit of this item. What evidence would you need to see to either corroborate or question the entry?
Click here for the solution: Would it be considered unusual to find debits to fixed assets coming from a journal entry source
Friday, September 11, 2015
Which of the following would never require reporting deferred tax assets or deferred tax liabilities?
MULTIPLE CHOICE
1. Which of the following would never require reporting deferred tax assets or deferred tax liabilities? (Points : 1)
2. Which of the following statements typifies defined contribution plans? (Points : 1)
3. Which of the following causes a temporary difference between taxable and pretax accounting income? (Points : 1)
4. Consider the following:
A. I present value of vested benefits at present pay levels
B. II present value of nonvested benefits at present pay levels
C. III present value of additional benefits related to projected pay increases
Which of the above constitutes the accumulated benefit obligation? (Points : 1)
5. Of the following temporary differences, which one ordinarily creates a deferred tax asset? (Points : 1)
6. The annual pension expense for what type of pension plan(s) is recorded by a journal entry that includes a debit to pension expense and a credit to the pension asset or pension liability? (Points : 1)
7. The postretirement benefit obligation is the: (Points : 1)
8. When the service method is used for amortizing prior service costs, the amount recognized each year is (Points : 1)
9. The result of interperiod tax allocation is that: (Points : 1)
10. Which of the following statements is true regarding SFAS 109 and its use of the asset and liability approach? (Points : 1)
Click here for the solution: Which of the following would never require reporting deferred tax assets or deferred tax liabilities?
1. Which of the following would never require reporting deferred tax assets or deferred tax liabilities? (Points : 1)
2. Which of the following statements typifies defined contribution plans? (Points : 1)
3. Which of the following causes a temporary difference between taxable and pretax accounting income? (Points : 1)
4. Consider the following:
A. I present value of vested benefits at present pay levels
B. II present value of nonvested benefits at present pay levels
C. III present value of additional benefits related to projected pay increases
Which of the above constitutes the accumulated benefit obligation? (Points : 1)
5. Of the following temporary differences, which one ordinarily creates a deferred tax asset? (Points : 1)
6. The annual pension expense for what type of pension plan(s) is recorded by a journal entry that includes a debit to pension expense and a credit to the pension asset or pension liability? (Points : 1)
7. The postretirement benefit obligation is the: (Points : 1)
8. When the service method is used for amortizing prior service costs, the amount recognized each year is (Points : 1)
9. The result of interperiod tax allocation is that: (Points : 1)
10. Which of the following statements is true regarding SFAS 109 and its use of the asset and liability approach? (Points : 1)
Click here for the solution: Which of the following would never require reporting deferred tax assets or deferred tax liabilities?
Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating
B2. (Choosing financial targets) Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating. Sanderson has identified six comparable firms and calculated the credit statistics shown here.
a. Sanderson’s return on assets is 5.3%. It has a total capitalization of $600 million. What are reasonable targets for long-term debt/cap, funds from operations/LT debt, and fixed charge coverage?
b. Are there any firms among the six who are particularly good or bad comparable? Explain.
c. Suppose Sanderson’s current ratio of long-term debt to total cap is 60% but its fixed charge coverage is 3.00. What would you recommend?
FIRM A B C D E F
Senior debt rating Baa2/BBB Baa3/BBB− Baa2/BBB Baa1/A− Baa1/BBB− Baa2/BBB+
Return on assets 5.2% 5.0% 5.4% 5.7% 5.2% 5.3%
Long-term debt/cap 38% 41% 45% 40% 25% 43%
Total cap ($MM) 425 575 525 650 210 375
Funds from operations/LT debt 39% 43% 28% 46% 57% 43%
Fixed charge cov 2.57 2.83 2.75 2.38 3.59 2.15
Click here for the solution: Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating
a. Sanderson’s return on assets is 5.3%. It has a total capitalization of $600 million. What are reasonable targets for long-term debt/cap, funds from operations/LT debt, and fixed charge coverage?
b. Are there any firms among the six who are particularly good or bad comparable? Explain.
c. Suppose Sanderson’s current ratio of long-term debt to total cap is 60% but its fixed charge coverage is 3.00. What would you recommend?
FIRM A B C D E F
Senior debt rating Baa2/BBB Baa3/BBB− Baa2/BBB Baa1/A− Baa1/BBB− Baa2/BBB+
Return on assets 5.2% 5.0% 5.4% 5.7% 5.2% 5.3%
Long-term debt/cap 38% 41% 45% 40% 25% 43%
Total cap ($MM) 425 575 525 650 210 375
Funds from operations/LT debt 39% 43% 28% 46% 57% 43%
Fixed charge cov 2.57 2.83 2.75 2.38 3.59 2.15
Click here for the solution: Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating
Sunday, September 6, 2015
Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case
16.13 (Ratio analysis) Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case.
a. The firm has sales of $600,000, a gross profit margin of 10 percent, and an inventory turnover ratio of 6.
b. The firm has a cost-of-goods-sold figure of $480,000 and an average age of inventory of 40 days.
c. The firm has a cost-of-goods-sold figure of $1.15 million and an inventory turnover rate of 5.
d. The firm has a sales figure of $25 million, a gross profit margin of 14 percent, and an average age inventory of 45 days.
Click here for the solution: Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case
a. The firm has sales of $600,000, a gross profit margin of 10 percent, and an inventory turnover ratio of 6.
b. The firm has a cost-of-goods-sold figure of $480,000 and an average age of inventory of 40 days.
c. The firm has a cost-of-goods-sold figure of $1.15 million and an inventory turnover rate of 5.
d. The firm has a sales figure of $25 million, a gross profit margin of 14 percent, and an average age inventory of 45 days.
Click here for the solution: Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case
When would you advise a firm to use direct intervention to set transfer prices?
When would you advise a firm to use direct intervention to set transfer prices? What are the disadvantages of such a practice?
Click here for the solution: When would you advise a firm to use direct intervention to set transfer prices?
Click here for the solution: When would you advise a firm to use direct intervention to set transfer prices?
Monday, August 31, 2015
For each of the following problems, provide an audit procedure that would have identified the problem
Problem 10-28 For each of the following problems, provide an audit procedure that would have identified the problem.
(a) The allowance for doubtful accounts estimated by management is too small.
(b) Cash received in payment of an account receivable is deposited in the bank in the current period but is not posted to the accounts receivable record, trial balance, or general ledger until the subsequent period.
(c) For a month, sales are transacted using an outdated price list with amounts that are too low. The transactions are recorded accurately based on the price list used. Management is not aware the problem occurred.
(d) Cash for the exact amounts of sales are regularly pocketed by employees and not recorded on the sales terminal. Customers do not ask for receipts.
(e) Management records false sales close to year end and posts them as Accounts Receivable.
(f) Sales on account for services that take place in the first two days of the subsequent year are posted in the current year.
Click here for the solution: For each of the following problems, provide an audit procedure that would have identified the problem
(a) The allowance for doubtful accounts estimated by management is too small.
(b) Cash received in payment of an account receivable is deposited in the bank in the current period but is not posted to the accounts receivable record, trial balance, or general ledger until the subsequent period.
(c) For a month, sales are transacted using an outdated price list with amounts that are too low. The transactions are recorded accurately based on the price list used. Management is not aware the problem occurred.
(d) Cash for the exact amounts of sales are regularly pocketed by employees and not recorded on the sales terminal. Customers do not ask for receipts.
(e) Management records false sales close to year end and posts them as Accounts Receivable.
(f) Sales on account for services that take place in the first two days of the subsequent year are posted in the current year.
Click here for the solution: For each of the following problems, provide an audit procedure that would have identified the problem
Friday, August 21, 2015
Which of the following companies would be MOST likely to have an operating cycle longer than one year
MULTIPLE CHOICE
1. Which of the following companies would be MOST likely to have an operating cycle longer than one year? (Points : 2)
2. Which of the following investments is NOT reported on the balance sheet at current market value? (Points : 2)
3. Marbella Company has an investment in stock, classified as available-for-sale, with the following information at December 31, 2007:
Cost = $240,000
Market value = $280,000
How would Marbella report this information? (Points : 2)
4. Cash received from the sale of long-term assets is reported as (Points : 2)
5. Emergent Markets Corporation purchased a machine for $200,000 on January 1, 2007. The estimated life is 10 years. What is the book value on the December 31, 2009 balance sheet assuming straight-line depreciation is used and estimated residual value is zero?(Points : 2)
6. The excess of cost over the fair market value of net assets acquired when one company purchases another company should be reported as a(n) (Points : 2)
7. Purple Company owns 25% of the common stock of Marroon after purchasing 45,000 shares of Marroon's stock at a price of $30 per share on January 1, 2007. At the end of the year, Marroon reported net income of $100,000 and paid dividends of $40,000. What is the book value of Purple Company's investment at year-end? (Points : 2)
8. Which statement below is true about a company's operating cycle? (Points : 2)
9. Investments in tangible assets by a company that are intended to be used in the future to manufacture and/or sell products are recorded in the books as (Points : 2)
10. The term "current assets" is usually used to refer to assets that (Points : 2)
11. Meteorite Company sells its Available-For-Sale stock investment at a price of $61 per share. It had originally been purchased at $20 per share and its most recent adjustment had been to a market value of $32 per share. What was the per share realized gain or loss on sale? (Points : 2)
12. Trading and available-for-sale securities are reported on the balance sheet at(Points : 2)
13. Which of the following is NOT an intangible asset? (Points : 2)
14. GAAP requires that intangibles other than goodwill be amortized over a period of: (Points : 2)
15. The "using-up" process or utilization of intangible assets is referred to as (Points : 2)
16. An expenditure that extends the life of an asset or enhances its value is a(n) (Points : 2)
17. The systematic allocation of the cost of a patent to the periods that benefit from its use is (Points : 2)
18. Machinery with a cost of $150,000 and a book value of $52,500 was sold for $15,000 cash plus a note receivable of $27,500. What was the net effect of this sale on the financial statement items listed below?
Assets Net Income (Points : 2)
19. A bond is purchased at a discount. What will happen to the net carrying value of the bond on the balance sheet as its maturity date approaches? (Points : 2)
20. When companies have a temporary surplus of cash, they often invest it in (Points : 2)
Click here for the solution: Which of the following companies would be MOST likely to have an operating cycle longer than one year
1. Which of the following companies would be MOST likely to have an operating cycle longer than one year? (Points : 2)
2. Which of the following investments is NOT reported on the balance sheet at current market value? (Points : 2)
3. Marbella Company has an investment in stock, classified as available-for-sale, with the following information at December 31, 2007:
Cost = $240,000
Market value = $280,000
How would Marbella report this information? (Points : 2)
4. Cash received from the sale of long-term assets is reported as (Points : 2)
5. Emergent Markets Corporation purchased a machine for $200,000 on January 1, 2007. The estimated life is 10 years. What is the book value on the December 31, 2009 balance sheet assuming straight-line depreciation is used and estimated residual value is zero?(Points : 2)
6. The excess of cost over the fair market value of net assets acquired when one company purchases another company should be reported as a(n) (Points : 2)
7. Purple Company owns 25% of the common stock of Marroon after purchasing 45,000 shares of Marroon's stock at a price of $30 per share on January 1, 2007. At the end of the year, Marroon reported net income of $100,000 and paid dividends of $40,000. What is the book value of Purple Company's investment at year-end? (Points : 2)
8. Which statement below is true about a company's operating cycle? (Points : 2)
9. Investments in tangible assets by a company that are intended to be used in the future to manufacture and/or sell products are recorded in the books as (Points : 2)
10. The term "current assets" is usually used to refer to assets that (Points : 2)
11. Meteorite Company sells its Available-For-Sale stock investment at a price of $61 per share. It had originally been purchased at $20 per share and its most recent adjustment had been to a market value of $32 per share. What was the per share realized gain or loss on sale? (Points : 2)
12. Trading and available-for-sale securities are reported on the balance sheet at(Points : 2)
13. Which of the following is NOT an intangible asset? (Points : 2)
14. GAAP requires that intangibles other than goodwill be amortized over a period of: (Points : 2)
15. The "using-up" process or utilization of intangible assets is referred to as (Points : 2)
16. An expenditure that extends the life of an asset or enhances its value is a(n) (Points : 2)
17. The systematic allocation of the cost of a patent to the periods that benefit from its use is (Points : 2)
18. Machinery with a cost of $150,000 and a book value of $52,500 was sold for $15,000 cash plus a note receivable of $27,500. What was the net effect of this sale on the financial statement items listed below?
Assets Net Income (Points : 2)
19. A bond is purchased at a discount. What will happen to the net carrying value of the bond on the balance sheet as its maturity date approaches? (Points : 2)
20. When companies have a temporary surplus of cash, they often invest it in (Points : 2)
Click here for the solution: Which of the following companies would be MOST likely to have an operating cycle longer than one year
Monday, August 17, 2015
HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP
P 13-7 Various liabilities
HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply:
a. HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates it will need to pay a range of damages that falls between $5,000,000 and $10,000,000, with each amount in that range equally likely.
b. HW is defending against another lawsuit that is identical to item (a), but the relevant losses will only occur far into the future. The present values of the endpoints of the range are $3,000,000 and $8,000,000, with the timing of cash flow somewhat uncertain. HW considers these effects of the time value of money to be material.
c. HW is defending against another lawsuit for which management believes HW has a slightly worse than 50/50 chance of losing in court. If it loses the lawsuit, management estimates HW will need to pay a range of damages that falls between $3,000,000 and $9,000,000, with each amount in that range equally likely.
d. HW has $10,000,000 of short-term debt that it intends to refinance on a long-term basis. Soon after the balance sheet date, but before issuance of the financial statements, HW obtained the financing necessary to refinance the debt.
Required:
1. For each item, indicate how treatment of the amount would differ between U.S. GAAP and IFRS.
2. Consider the total effect of items a–d. If HW’s goal is to show the lowest total liabilities, which set of standards, U.S. GAAP or IFRS, best helps it meet that goal?
Click here for the solution: HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP
HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply:
a. HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates it will need to pay a range of damages that falls between $5,000,000 and $10,000,000, with each amount in that range equally likely.
b. HW is defending against another lawsuit that is identical to item (a), but the relevant losses will only occur far into the future. The present values of the endpoints of the range are $3,000,000 and $8,000,000, with the timing of cash flow somewhat uncertain. HW considers these effects of the time value of money to be material.
c. HW is defending against another lawsuit for which management believes HW has a slightly worse than 50/50 chance of losing in court. If it loses the lawsuit, management estimates HW will need to pay a range of damages that falls between $3,000,000 and $9,000,000, with each amount in that range equally likely.
d. HW has $10,000,000 of short-term debt that it intends to refinance on a long-term basis. Soon after the balance sheet date, but before issuance of the financial statements, HW obtained the financing necessary to refinance the debt.
Required:
1. For each item, indicate how treatment of the amount would differ between U.S. GAAP and IFRS.
2. Consider the total effect of items a–d. If HW’s goal is to show the lowest total liabilities, which set of standards, U.S. GAAP or IFRS, best helps it meet that goal?
Click here for the solution: HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP
Friday, July 31, 2015
H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market
Exercise 13-35 Target Costing
H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market. The toaster will have four slots that adjust in thickness to accommodate both slim slices of bread and oversized bagels. The target price is $75. Banks requires that new products be priced such that 20 percent of the price is profit.
Instructions
1. Calculate the amount of desired profit per unit of the new toaster.
2. Calculate the target cost per unit of the new toaster.
Click here for the solution: H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market
H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market. The toaster will have four slots that adjust in thickness to accommodate both slim slices of bread and oversized bagels. The target price is $75. Banks requires that new products be priced such that 20 percent of the price is profit.
Instructions
1. Calculate the amount of desired profit per unit of the new toaster.
2. Calculate the target cost per unit of the new toaster.
Click here for the solution: H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market
Tuesday, July 14, 2015
An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year
E8–1 An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year. At the beginning of the year, the firm had a stock market value of $10 million. At the end of the year, it had a market value of $12 million even though it experienced a loss, or negative net income, of $2.5 million. Did the analyst’s prediction prove correct? Explain using the values for total annual return.
Click here for the solution: An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year
Click here for the solution: An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year
Sunday, July 12, 2015
At what value would a government report bonds payable on its government-wide statements?
At what value would a government report bonds payable on its government-wide statements? Why might this value differ from the bonds' face value? Why might it differ from their market value?
Click here for the solution: At what value would a government report bonds payable on its government-wide statements?
Click here for the solution: At what value would a government report bonds payable on its government-wide statements?
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