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business
managerial accounting

Questions and Answers of Managerial Accounting

If an asset is sold at a gain, why is the gain deducted from net income when computing the net cash provided by operating activities under the indirect method?
Why aren’t transactions involving accounts payable considered to be financing activities?
Assume that a company repays a $300,000 loan from its bank and then later in the same year borrows $500,000. What amount(s) would appear on the statement of cash flows?
How do the direct and the indirect methods differ in their approach to computing the net cash provided by operating activities?
A business executive once stated, “Depreciation is one of our biggest sources of cash.” Do you agree that depreciation is a source of cash? Explain.
If the Accounts Receivable balance increases during a period, how will this increase be recognized using the indirect method of computing the net cash provided by operation activities?
Would a sale of equipment for cash be considered a financing activity or an investing activity? Why?
Refer to the financial statements for Rusco Products in Problem 15—11. Because the Cash account decreased so dramatically during 2009, the company’s executive committee is anxious to see how the
Below are transactions that took place in Placid Company during the past year:a. Equipment was purchased.b. A cash dividend was declared and paid.c. Accounts receivable decreased.d. Short-term
The just completed year, Hanna Company had a net income of $35,000. Balances in the company’s current asset and current liability accounts at the beginning and end of the year were:The Deferred
Apex Company prepared the statement of cash flows for the current year that is shown below:Required:Compute Apex Company’s free cash flow for the current year.
Changes in various accounts and gains and losses on the sale of assets during the year for Argon Company are given below:Required:Prepare an answer sheet using the following column headings:For each
Comparative financial statement data for Carmono Company follow:For 2009, the company reported net income as follows:Dividends of $14 were declared and paid during 2009.Required:1.
The following changes took place during the year in Pavolik Company’s balance sheet accounts:Long-term investments that had cost the company $6 were sold during the year for $ 16, and land that
Below are a number of transactions that took place in Seneca Company during the past year:a. Common stock was sold for cash.b. Interest was paid on a note, decreasing Interest Payable.c. Bonds were
Comparative financial statements for Weaver Company follow:During 2009, the company sold some equipment for $20 that had cost $40 and on which there was accumulated depreciation of $16. In addition,
Balance sheet accounts for Joyner Company contained the following amounts at the end of Years 1and 2:The company’s income statement for Year 2 follows:Equipment that had cost $40,000 and on which
“See, I told you things would work out,” said Barry Kresmier, president of Lomax Company. “We expanded sales from $1.6 million to $2.0 million in 2009, nearly doubled our warehouse space, and
Mary Walker, president of Rusco Products, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 in cash was available at
Below are listed the changes in Yoric Company’s balance sheet accounts for the past year:The following additional information is available about last year’s activities:Net income for the year
The questions in this exercise are based on Netflix, Inc. To answer the questions you will need to download Netilix’s Form 10-K for the year ended December 31, 2005 at
Refer to the data for Hanna Company in Exercise 15—2. The company’s income statement for the year appears below:Required:Using the direct method (and the data from Exercise 15—2), convert the
Refer to the data for Carmono Company in Exercise 15—5.Required:Using the direct method, convert the company’s income statement to a cash basis.
Wiley Company’s income statement for Year 2 follows:The company’s selling and administrative expense for Year 2 includes $7,500 of depreciation expense. Selected balance sheet accounts for Wiley
Refer to the data for Pavolik Company in Exercise 15—6.Required:Use the direct method to convert the company’s income statement to a cash basis.
Refer to the financial statement data for Weaver Company in Problem 15—8.Required:Using the direct method, adjust the company’s income statement for 2009 to a cash basis.Using the information
Refer to the financial statement data for Joyner Company in Problem 15—9. Sam Conway, president of the company, considers $15,000 to be the minimum cash balance for operating purposes. As can be
Distinguish between horizontal and vertical analysis of financial statement data.
What is the basic purpose for examining trends in a company’s financial ratios and other data? What other kinds of comparisons might an analyst make?
Assume that two companies in the same industry have equal earnings. Why might these companies have different price-earnings ratios? If a company has a price-earnings ratio of 20 and reports earnings
Would you expect a company in a rapidly growing technological industry to have a high or low dividend payout ratio?
What is meant by the dividend yield on a common stock investment?
What is meant by the term financial leverage?
The president of a plastics company was quoted in a business journal as stating, “We haven’t had a dollar of interest-paying debt in over 10 years. Not many companies can say that” As a
If a stock’s market value exceeds its book value, then the stock is overpriced. Do you agree? Explain.
A company seeking a line of credit at a bank was turned down. Among other things, the bank stated that the company’s 2 to I current ratio was not adequate. Give reasons why a 2 to 1 current ratio
The questions in this exercise are based on Target Corporation. To answer the questions, you will need to download Target’s 2004 annual report (the company’s fiscal year ended on January 29,
A comparative income statement is given below for McKenzie Sales, Ltd., of Toronto:Members of the company’s board of directors are surprised to see that net income increased by only $38,000 when
Comparative financial statements for Weller Corporation for the fiscal year ending December 31 appear below. The company did not issue any new common or preferred stock during the year. A total of
Refer to the data in Exercise 16—2 for Weller Corporation.Required:Compute the following financial data for short-term creditors for this year:Working capital.Current ratio.Acid-test ratio.Accounts
Refer to the data in Exercise 16—2 for Weller Corporation.Required:Compute the following financial ratios for long-term creditors for this year:Times interest earned ratio.Debt-to-equity ratio.
Rotorua Products, Ltd., of New Zealand markets agricultural products for the burgeoning Asian consumer market. The company’s current assets, current liabilities, and sales have been reported as
Selected financial data from the June 30 year-end statements of Safford Company are givenTotal assets at the beginning of the year were $3,000,000; total stockholders’ equity was $2,200,000. There
The financial statements for Castile Products, Inc., are given below:Account balances at the beginning of the year were: accounts receivable, $25,000; and inventory, $60,000. All sales were on
Refer to the financial statements for Castile Products, inc., in Exercise 16-7. In addition to the data in these statements, assume that Castile Products, Inc., paid dividends of $2.10 per share
Refer to the financial statements for Castile Products, Inc., in Exercise 16-7. Assets at the beginning of the year totaled $280,000, and the stockholders’ equity totaled $161,600.Required:Compute
Norsk Optronics, ALS, of Bergen, Norway, had a current ratio of 2.5 on June 30 of the current year. On that date, the company’s assets were:The Norwegian currency is the krone, denoted here by the
Denna Company’s working capital accounts at the beginning of the year follow:During the year, Denna Company completed the following transactions:x. Paid a cash
Paul Sabin organized Sabin Electronics 10 years ago to produce and sell several electronic devices on which he had secured patents. Although the company has been fairly profitable, it is now
Refer to the financial statements and other data in Problem 16—12. Assume that you are an account executive for a large brokerage house and that one of your clients has asked for a recommendation
You have just been hired as a loan officer at Slippery Rock State Bank. Your supervisor has given you a file containing a request from Lydex Company, a manufacturer of safety helmets. For a
Refer to the financial statement data for Lydex Company given in Problem 16—14.Required:For both this year and last year:1. Present the balance sheet in common-size format.2. Present the income
In the right-hand column below, certain financial ratios are listed. To the left of each ratio is a business transaction or event relating to the operating activities of Delta Company (each
Paul Ward is interested in the stock of Pecunious Products, Inc. Before purchasing the stock, Ward would like your help in analyzing the data that are available to him as follows: Mr. Ward would like
Incomplete financial statements for Pepper Industries follow:The following additional information is available about the company:a) All sales during the year were on account.b) There was no change
Venice InLine, Inc., was founded by Russ Perez to produce a specialized in-line skate he had designed for doing aerial tricks. Up to this point, Russ has financed the company with his own sayings and
National Restaurant Supply, Inc., sells restaurant equipment and supplies throughout most of the United States. Management is considering adding a machine that makes sorbet to its line of ice cream
What does the price elasticity of demand measure? What is inelastic demand? What is elastic demand?
According to the economists’ approach to setting prices, the profit-maximizing price should depend on what two factors?
Which product should have a larger markup over variable cost, a product whose demand is elastic or a product whose demand is inelastic?
When the absorption costing approach to cost-plus pricing is used, what is the markup supposed to cover?
What assumption does the absorption costing approach make about how consumers react to prices?
Discuss the following statement: “Full cost can be viewed as a floor of protection. If a company always sets its prices above full cost, it will never have to worry about operating at a loss?’
What is target costing? How do target costs enter into the pricing decision?
Maria Lorenzi owns an ice cream stand that she operates during the summer months in West Yellowstone, Montana. Her store caters primarily to tourists passing through town on their way to Yellowstone
Martin Company is considering the introduction of a new product. To determine a selling price, the company has gathered the following information:Required:The company uses the absorption costing
Shimada Products Corporation of Japan is anxious to enter the electronic calculator market. Management believes that in order to be competitive in world markets, the price of the electronic
Wilderness Products, Inc., has designed a self-inflating sleeping pad for use by backpackers and campers. The following information is available about the new product:a.
The postal service of St. Vincent, an island in the West Indies, obtains a significant portion of its revenues from sales of special souvenir sheets to stamp collectors. The souvenir sheets usually
Software Solutions, Inc., was started by two young software engineers to market SpamBlocker, a software application they had written that screens incoming e-mail messages and eliminates unsolicited
South Seas Products, Inc., has designed a new surfboard to replace its old surfboard line. Because of the unique design of the new surfboard, the company anticipates that it will be able to sell all
What is meant by absolute profitability?
What is meant by relative profitability?
A successful owner of a small business stated: “We have the best technology, the best products, and the best people in the world. We have no constraints.” Do you agree?
What information is needed to measure the absolute profitability of a segment?
What information is needed to measure the relative profitability of a product?
How should the relative profitability of products be determined in a volume trade-off decision?
What costs should be covered by the selling price of a new product?
MidWest Amusements is in the process of reviewing 10 proposals for new rides at its theme parks in cities scattered throughout the American heartland. The company’s only experienced safety engineer
Heritage Watercraft makes reproductions of classic wooden boats. The bottleneck in the production process is fitting wooden planks to build up the curved sections of the hull. This process requires
Seattle’s Top Coffee owns and operates a chain of popular coffee stands that serve over 30 different coffee-based beverages. The constraint at the coffee stands is the amount of time required to
Sammamish Brick, Inc., manufactures bricks using clay deposits on the company’s property. Raw clays are blended and then extruded into molds to form unfired bricks. The unfired bricks are then
In practice, many organizations measure the relative profitability of their segments by dividing the segments’ margins by their revenues. The segment margin for this purpose is the segment’s
Luxus Baking Company has developed a reputation for producing superb, one-of-a-kind wedding cakes in addition to its normal fare of breads and pastries. While the wedding cake business is a major
Advanced Pharmaceuticals, Inc., is a wholesale distributor of prescription drugs to independent retail and hospital-based pharmacies. Management believes that top-notch customer representatives are
Vectra Corporation recently suffered its fourth straight decline in quarterly earnings—despite a modest increase in sales. Unfortunately, Vectra’s industry is highly competitive, so the company
What are the three major objectives of budgeting?
Briefly describe the type of human behavior problems that might arise if budget goals are set too tightly.
Give an example of budgetary slack.
What behavioral problems are associated with setting a budget too loosely?
Under what circumstances would a static budget be appropriate?
How do computerized budgeting systems aid firms in the budgeting process?
Why should the production requirements set forth in the production budget be carefully coordinated with the sales budget?
Why should the timing of direct materials purchases be closely coordinated with the production budget?
a. Discuss the purpose of the cash budget.b. If the cash for the first quarter of the fiscal year indicates excess cash at the end of each of the first two months, how might the excess cash be used?
How does a schedule of collections from sales assist in preparing the cash budget?
Give an example of how the capital expenditures budget affects other operating budgets
At the beginning of the period, the Fabricating Department budgeted direct labor of $22,500 and equipment depreciation of $7,000 for 900 hours of production. The department actually completed 750
At the beginning of the period, the Assembly Department budgeted direct labor of $186,000 and property tax of $15,000 for 12,000 hours of production. The department actually completed 13,400 hours of
Soft Glow Candle Co. projected sales of 78,000 candles for 2010. The estimated January 1, 2010, inventory is 3,600 units, and the desired December 31, 2010, inventory is 4,500 units. What is the

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