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business
principles financial accounting
Financial Accounting 9th Edition Dr Carl S. Warren, Dr James M. Reeve, Philip E. Fess - Solutions
Compute the operating leverage and the margin of safety, and explain how managers use these concepts.AppendixLO1
List the assumptions underlying cost- volume-profit analysis.AppendixLO1
which of the following statements describes vari¬ able costs?A. Costs that vaiy on a per-unit basis as the level of activity changes.B. Costs that vary in total in direct proportion to changes in the level of activity.C. Costs that remain the same in total dollar amount as the level of activity
If sales are $500,000, variable costs are $200,000, and fixed costs are $240,000, what is the contribu¬ tion margin ratio?A. 40% C. 52%B. 48% ■ D. 60%AppendixLO1
If the unit selling price is $16, the unit variable cost is $12, and fixed costs are $160,000, what are the break-even sales (units)?A. 5,714 units B. 10,000 units C. 13,333 units D. 40,000 units.AppendixLO1
Based on the data presented in Question 3, how many units of sales would be required to realize income from operations of $20,000?A. 11,250 units C. 40,000 units B. 35,000 units D. 45,000 units AppendixLO1
Based on the following operating data, what is the operating leverage?Sales $600,000 Variable costs 240,000 Contribution margin $360,000 Fixed costs 160,000 Income from operations $200,000 A. 0.8 B. 1.2 C. 1.8 D. 4.0 AppendixLO1
Describe how total variable costs and unit variable costs behave with changes in the level of activity.AppendixLO1
How would each of the following costs be classified if units produced is the activity base?a. Direct labor costsb. Direct materials costc. Electricity costs of $0.20 per kilowatt-hour 3- Describe the behavior of (a) total fixed costs and (b) unit fixed costs as the level of activity
How would each of the following costs be classified if units produced is the activity base?a. Straight-line depreciation of plant and equipmentb. Salary of factory supervisor ($80,000 per year)c. Property insurance premiums of $5,000 per month on plant and equipment AppendixLO1
In cost analyses, how are mixed costs treated?AppendixLO1
Which of the following graphs illustrates how total variable costs behave with changes in total units produced?AppendixLO1 0 Total Cost Total Units Produced (e) 0 Total Cost Total Units Produced (b)
Which of the following graphs illustrates how unit variable costs behave with changes in total units produced?AppendixLO1 Unit Cost (a) (b) 0 Total Units Produced 0 Unit Cost Total Units Produced
Which of the following graphs best illustrates fixed costs per unit as the activ¬ ity base changes?AppendixLO1 Costs per Unit (a) 0 Activity Base 0 Costs per Unit (b) Activity Base
In applying the high-low method of cost estimation, how is the total fixed cost estimated?AppendixLO1
If fixed costs increase, what would be the impact on the (a) contribution mar- gin? (b) income from operations?AppendixLO1
An examination of the accounting records of Hudson Company disclosed a high contribution margin ratio and production at a level below maximum capacity. Based on this information, suggest a likely means of improving income from op- erations. Explain.AppendixLO1
If the unit cost of direct materials is decreased, what effect will this change have on the break-even point?AppendixLO1
If insurance rates are increased, what effect will this change in fixed costs have on the break-even point?AppendixLO1
Both Simmons Company and Pate Company had the same sales, total costs, and income from operations for the current fiscal year; yet Simmons Company had a lower break-even point than Pate Company. Explain the reason for this dif- ference in break-even points.AppendixLO1
How does the sales mix affect the calculation of the break-even point?AppendixLO1
What does operating leverage measure, and how is it computed?AppendixLO1
Define fixed assets and describe the accounting for their cost.AppendixLO1
Compute depreciation, using the following methods: straight-line method, units-of-production method, and declining-balance method.AppendixLO1
Classify fixed asset costs as either capital expenditures or revenue expenditures.AppendixLO1
Journalize entries for the disposal of fixed assets.AppendixLO1
Define a lease and summarize the accounting rules related to the leasing of fixed assets.AppendixLO1
Describe internal controls over fixed assets.AppendixLO1
Compute depletion and journalize the entry for depletion.AppendixLO1
Describe the accounting for intan¬ gible assets, such as patents, copy¬ rights, and goodwill.AppendixLO1
Describe how depreciation expense is reported in an income statement, and prepare a balance sheet that includes fixed assets and intangible assets.AppendixLO1
Compute and interpret the ratio of fixed assets to long-term liabilities.AppendixLO1
which of the following expenditures incurred in connection with acquiring machinery is a proper charge to the asset account?A. Freight C. Both A and B B. Installation costs D. Neither A nor B AppendixLO1
What is the amount of depreciation, using the declining-balance method (twice the straight-line rate) for the second year of use for equipment cost¬ ing $9,000, with an estimated residual value of $600 and an estimated life of 3 years?A. $6,000 C. $2,000 B. $3,000 D. $400 AppendixLO1
An example of an accelerated depreciation method is:A. Straight-line C. Units-of-production B. Declining-balance D. Depletion Class Discussion Questions AppendixLO1
Which of the following qualities are characteristic of fixed assets? (a) tangible, (b) capable of repeated use in the operations of the business, (c) held for sale in the normal course of business, (d) used rarely in the operations of the busi¬ ness, (e) long-lived.AppendixLO1
Wang Office Equipment Co. has a fleet of automobiles and tmcks for use by salespersons and for delivery of office supplies and equipment. Lake City Auto Sales Co. has automobiles and trucks for sale. Under what caption would the automobiles and trucks be reported on the balance sheet of (a) Wang
Muskegon Co. acquired an adjacent vacant lot with the hope of selling it in the future at a gain. The lot is not intended to be used in Muskegon’s business op¬ erations. Where should such real estate be listed in the balance sheet?AppendixLO1
Redding Company solicited bids from several contractors to constmct an addi¬ tion to its office building. The lowest bid received was for $420,000. Redding Company decided to construct the addition itself at a cost of $375,000. What _ amount should be recorded in the building account?AppendixLO1
Are the amounts at which fixed assets are reported in the balance sheet their approximate market values as of the balance sheet date? Discuss.AppendixLO1
A fixed asset priced at $100,000 is acquired by trad¬ ing in a similar asset that has a book value of $25,000. Assuming that the trade-in allowance is $30,000 and that $70,000 cash is paid for the new asset, what is the cost of the new asset for finan¬ cial reporting purposes?A. $100,000 C.
Which of the following is an example of an intan¬ gible asset?A. Patents C. Copyrights B. Goodwill D. All of the above AppendixLO1
a. Does the recognition of depreciation in the accounts provide a special cash fund for the replacement of fixed assets? Explain,b. Describe the nature of depreciation as the term is used in accounting.AppendixLO1
Lowell Company purchased a machine that has a manufacturer’s suggested life of 18 years. The company plans to use the machine on a special project that will last 12 years. At the completion of the project, the machine will be sold. Over how many years should the machine be depreciated?AppendixLO1
Is it necessary for a business to use the same method of computing deprecia¬ tion (a) for all classes of its depreciable assets, (b) in the financial statements and in detemiining income taxes?AppendixLO1
a. Under what conditions is the use of an accelerated depreciation method most appropriate?b. Why is an accelerated depreciation method often used for income tax purposes?c. What is the Modified Accelerated Cost Recovery System (MACRS), and under what conditions is it used?AppendixLO1
A company revised the estimated useful lives of its fixed assets, which resulted in an increase in the remaining lives of several assets. Do GAAP permit the com¬ pany to include, as income of the current period, the cumulative effect of the changes, which reduces the depreciation expense of past
Differentiate between the accounting for capital expenditures and revenue ex¬ penditures.AppendixLO1
Immediately after a used truck is acquired, a new motor is installed and the tires are replaced at a total cost of $5,750. Is this a capital expenditure or a revenue expenditure?AppendixLO1
For some of the fixed assets of a business, the balance in Accumulated Depre¬ ciation is exactly equal to the cost of the asset, (a) Is it permissible to record additional depreciation on the assets if they are still useful to the business? Ex¬ plain. (b) When should an entry be made to remove
a. Describe the internal controls for acquiring fixed assets,b. Explain why a physical count of fixed assets is desirable.AppendixLO1
a. Over what period of time should the cost of a patent acquired by purchase be amortized?b. In general, what is the required accounting treatment for research and de¬ velopment costs?c. How should goodwill be amortized?AppendixLO1
List the common classifications of receivables.AppendixLO1
Summarize and provide examples of internal control procedures tliat apply to receivables.AppendixLO1
Describe the nature of and the ac¬ counting for uncollectible receivables.AppendixLO1
Journalize the entries for the al¬ lowance method of accounting for uncollectibles, and estimate uncol¬ lectible receivables based on sales and on an analysis of receivables.AppendixLO1
Journalize the entries for the direct write-off of uncollectible receivables.AppendixLO1
Describe the nature and characteristics of promissory notes.AppendixLO1
Journalize the entries for notes receiv¬ able transactions.AppendixLO1
Prepare the Current Assets presenta¬ tion of receivables on the balance sheet.AppendixLO1
Compute and interpret the accounts receivable turnover and the number of days' sales in receivables.AppendixLO1
what are the three classifications of receivables?AppendixLO1
What types of transactions give rise to accounts receivable?AppendixLO1
In what section of the balance sheet should a note receivable be listed if its term is (a) 120 days, (b) 6 years?AppendixLO1
Give two examples of other receivables.AppendixLO1
The accounts receivable clerk is also responsible for handling cash receipts. Which principle of internal control is violated in this situation?AppendixLO1
Which of the two methods of accounting for uncollectible accounts provides for the recognition of the expense in the period of sale?AppendixLO1
What kind of an account (asset, liability, etc.) is Allowance for Doubtful Ac¬ counts, and is its normal balance a delrit or a credit?A. $8,800 C. $10,300 B. $10,000 D. $11,200 AppendixLO1
What is the due date of a $12,000, 90-day, 8% note receivable dated August 5?A. October 31 C. November 3 B. November 2 D. November 4 AppendixLO1
When a note receivable is dishonored. Accounts Receivable is debited for what amount?A. The face value of the note B. The maturity value of the note C. The maturity value of the note less accrued in¬ terest D. The maturity value of the note plus accrued in¬ terest Chapter 7 • Receivables 299
After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $883,150 and Allowance for Doubtful Accounts has a balance of $123,250. Describe how the accounts receivable and the allowance for doubtful accounts are reported on the balance
Which of the two methods of estimating uncollectibles provides for the most ac¬ curate estimate of the current net realizable value of the receivables?AppendixLO1
For a business, what are the advantages of a note receivable in comparison to an account receivable?AppendixLO1
Mobley Company issued a promissory note to Ellsworth Company, (a) Who is the payee? (b) What is the title of the account used by Ellsworth Company in recording the note?AppendixLO1
If a note provides for payment of principal of $90,000 and interest at the rate of 7%, will the interest amount to $6,300? Explain.AppendixLO1
The maker of a $20,000, 9%, 120-day note receivable failed to pay the note on the due date of July 30. What accounts should be debited and credited by the payee to record the dishonored note receivable?AppendixLO1
Summarize and provide examples of internal control procedures that apply to inventories.AppendixLO1
Describe the effect of inventory r errors on the financial statements.AppendixLO1
Describe three inventory cost flow assumptions and how they impact the income statement and balance sheet.AppendixLO1
Compute the cost of inventory under the perpetual inventory sys¬ tem, using the following costing methods: first-in, first-out; last-in, first-out; and average cost.AppendixLO1
Compute the cost of inventory under the periodic inventory sys¬ tem, using the following costing methods: first-in, first-out; last-in, first-out; and average cost.AppendixLO1
Compare and contrast the use of the three inventory costing methods.AppendixLO1
Compute the proper valuation of inventory at other than cost, using the lower-of-cost-or-market and net realizable value concepts.AppendixLO1
Prepare a balance sheet presenta¬ tion of merchandise inventory.AppendixLO1
Estimate the cost of inventory, using the retail method and the gross profit method.AppendixLO1
Compute and interpret the inven¬ tory turnover ratio and the number of days' sales in inventory.AppendixLO1
If the inventory shrinkage at the end of the year is overstated by $7,500, the error will cause an:A. understatement of cost of merchandise sold for the year by $7,500.B. overstatement of gross profit for the year by $7,500.C. overstatement of merchandise inventory for the year by $7,500.D.
The inventory costing method that is based on the assumption that costs should be charged against revenue in the order in which they were incurred is:A. fifo C. average cost B. lifo D. perpetual inventory.AppendixLO1
3. The following units of a particular item were pur- cha.sed and sold during the period:Beginning inventory First purchase Second purchase First sale Third purchase Second sale 40 units at $20 50 units at $21 50 units at $22 110 units 50 units at $23 45 units What is the cost of the 35 units on
4. The following units of a particular item were avail¬ able for sale during the period:Beginning inventory First purchase Second purchase Third purchase 40 units at $20 50 units at $21 50 units at $22 50 units at $23 What is the unit cost of the 35 units on hand at the end of the period as
If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is;A. lifo C, average B. fifo D. periodic AppendixLO1
What security measures may be used by retailers to protect merchandise inven¬ tory from customer theft?Chapter 8 • Inventories 339 AppendixLO1
Which inventory system provides the more effective means of controlling in¬ ventories (perpetual or periodic)? Why?AppendixLO1
Before inventory purchases are recorded, the receiving report should be recon¬ ciled to what documents?AppendixLO1
What document should be presented by an employee requesting inventory items to be released from the company’s warehouse?AppendixLO1
Why is it important to periodically take a physical inventory if the perpetual sys¬ tem is used?AppendixLO1
The inventory shrinkage at the end of the year was understated by S 18,500. (a) Did the error cause an overstatement or an understatement of the gross profit for the year? (b) Which items on the balance sheet at the end of the year were overstated or understated as a result of the error?AppendixLO1
Martin Co. sold merchandise to Fess Company on December 31, FOB shipping point. If the merchandise is in transit on December 31, the end of the fiscal year, which company would report it in its financial statements? Explain.AppendixLO1
Do the terms fifo and lifo refer to techniques used in determining quantities of the various classes of merchandise on hand? Explain.AppendixLO1
Does the term last-in in the lifo method mean that the items in the inventory are assumed to be the most recent (last) acquisitions? Explain.AppendixLO1
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