Effective Techniques for Accounting Discussion Posts
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Effective Techniques for Accounting Discussion Posts
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30. Prepare a statement of cash flows using the indirect method for year 2011.
UMLAUF COMPANY
Balance Sheets
December 31,2011 and 2010
2011 2010
Assets
Cash $ 43,050 $ 23,925
Accounts receivable 34,125 39,825
Merchandise inventory 156,000 146,475
Prepaid expenses 3,600 1,650
Equipment 135,825 146,700
Accumdepreciation—Equipment . (61,950) (47,550)
Total assets $310,650 $311,025
Liabilities and Equity
Accounts payable $ 28,800 $ 33,750
Income taxes payable 5,100 4,425
Dividends payable 0 4,500
Bonds payable 0 37,500
Common stock, $10 par 168,750 168,750
Retained earnings 108,000 62,100
Total liabilities and equity $310,650 $311,025
UMLAUF COMPANY
Income Statement
For Year Ended December 31,2011
Sales $446,100
Cost of goods sold $222,300
Other operating expenses 120,300
Depreciation expense 25,500 (368,100)
78,000
Other gains (losses)
Loss on sale of equipment 3,300
Loss on retirement of bonds 825 (4,125) 73,875
Income before taxes
Income taxes expense (13,725)
Net income $ 60,150
Additional Information
a. Equipment costing $21,375 with accumulated depreciation of $11,100 is sold for cash.
b. Equipment purchases are for cash.
c. Accumulated Depreciation is affected by depreciation expense and the sale of equipment.
d. The balance of Retained Earnings is affected by dividend declarations and net income.
e. All sales are made on credit.
f. All merchandise inventory purchases are on credit.
g. Accounts Payable balances result from merchandise inventory purchases.
h. Prepaid expenses relate to “other operating expenses.”
Required
1. Prepare a statement of cash flows using the indirect method for year 2011.
2. Prepare a statement of cash flows using the direct method for year 2011.
31. Chou Company uses the aging approach to estimate bad debt expense. The ending balance of each acc...
Chou Company uses the aging approach to estimate bad debt expense. The ending balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $282,000, (2) up to 120 days past due, $51,000, and (3) more than 120 days past due, $24,000. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectibility is (1) 4.0 percent, (2) 11 percent, and (3) 30 percent, respectively. At December 31, the end of the current year, the Allowance for Doubtful Accounts balance is $200 (credit) before the end-of-period adjusting entry is made.
Required:
1. Prepare the appropriate bad debt expense adjusting journal entry for the current year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
?1. Journal Entry: Record the adjusting journal entry for bad debt expense.
2. Show how the various accounts related to accounts receivable should be shown on the December 31, current year, balance shee. (Amounts to be deducted should be indicated by a minus sign.)
32. Whitman Company has just completed its first year of operations
Whitman Company has just completed its first year of operations. The company’s absorption costing income statement for the year appears below:
The company’s selling and administrative expenses consist of $210,000 per year in fixed expenses and $2 per unit sold in variable expenses. The $16 per unit product cost given above is computed as follows:
Required:
1. Redo the company’s income statement in the contribution format using variable costing.
2. Reconcile any difference between the net operating income on your variable costing income statement and the net operating income on the absorption costing income statementabove.
33. On July 1, 2008, Agincourt Inc. made two sales. 1.
On July 1, 2008, Agincourt Inc. made two sales.
1. It sold land having a fair market value of $700,000 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,101,460. The land is carried on Agincourt’s books at a cost of $590,000.
2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $400,000 (interest payable annually).
Agincourt Inc. recently had to pay 8% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 12% interest.
Instructions
(a) Record the two journal entries that should be recorded by Agincourt Inc. for the sales transactions above that took place on July 1, 2008. (Round to the nearest dollar.)
(b) Assume that Agincourt uses the fair value option for the note issued in exchange for the land. Prepare the entry at December 31, 2008, if the fair value of the note is $720,000.
34. --what is the direct labor cost?
Williams Company's direct labor cost is 25% of its conversion cost. If the Manufacturing overhead cost for the last period was $45,000 and the direct materials cost was $25,000, the direct labor cost was:
a. $15,000.
b. $60,000.
c. $33,333.
d. $20,000.
35. A financial advisor has recommended two possible mutual funds for investment.
A financial advisor has recommended two possible mutual funds for investment: Fund A and Fund B. The return that will be achieved by each of these depends on whether the economy is good, fair, or poor. A payoff table has been constructed to illustrate this situation:
STATE OF NATURE
INVESTMENT GOOD
ECONOMY FAIR
ECONOMY POOR
ECONOMY
Fund A $10,000 $2,000 -$5,000
Fund B $6,000 $4,000 0
Probability 0.2 0.3 0.5
(a) Draw the decision tree to represent this situation.
(b) Perform the necessary calculations to determine which of the two mutual funds is better. Which one should you choose to maximize the expected value?
(c) Suppose there is question about the return of Fund A in a good economy. It could be higher or lower than $10,000. What value for this would cause a person to be indifferent between Fund A and Fund B (i.e., the EMVs would be the same)?
36. Based on the following data, would Ann and Carl Wilton receive a refund or owe additional taxes?...
Based on the following data, would Ann and Carl Wilton receive a refund or owe additional taxes?
Adjusted gross income, $46,686
Itemized deductions, $11,420
Child care tax credit, $80
Federal income tax withheld, $4,784
Amount for personal exemptions, $7,300
Tax rate on taxable income, 15 percent
37. Candice Corporation has decided to introduce a new product
Candice Corporation has decided to introduce a new product. The product can be manufactured using either a capital-intensive or labor-intensive method. The manufacturing method will not affect the quality or sales of the product. The estimated manufacturing costs of the two methods are as follows:
Capital Labor
-intensive -intensive
Variable manufacturing cost per unit $14.00 $17.60
Fixed manufacturing cost per year $2,440,000 $1,320,000
The company's market research department has recommended an introductory selling price of $30 per unit for the new product. The annual fixed selling and administrative expenses of the new product are $500,000. The variable selling and administrative expenses are $2 per unit regardless of how the new product is manufactured.
Required:
a. Calculate the break-even point in units if Candice Corporation uses the:
1. capital-intensive manufacturing method.
2. labor-intensive manufacturing method.
b. Determine the unit sales volume at which the net operating income is the same for the two manufacturing methods.
c. Assuming sales of 250,000 units, what is the degree of operating leverage if the company uses the:
1. capital-intensive manufacturing method.
2. labor-intensive manufacturing method.
d. What is your recommendation to management concerning which manufacturing method should be used?
38. (Objective 7-4) Following are 10 audit procedures with words missing and a list of several terms...
(Objective 7-4) Following are 10 audit procedures with words missing and a list of several terms commonly used in audit procedures.
Audit Procedures
1. _____ the unit selling price times quantity on the duplicate sales invoice and compare the total to the amount on the duplicate sales invoice.
2. _____ whether the accounts receivable bookkeeper is prohibited from handling cash.
3. _____ the ratio of cost of goods sold to sales and compare the ratio to previous years.
4. _____ the sales journal and _____ the total to the general ledger.
5. _____ the sales journal, looking for large and unusual transactions requiring investigation.
6. _____ of management whether all accounting employees are required to take annual vacations.
7. _____ all marketable securities as of the balance sheet date to determine whether they equal the total on the client’s list.
8. _____ the balance in the bank account directly with the East State Bank.
9. _____ a sample of duplicate sales invoices to determine if the controller’s approval is included and _____ each duplicate sales invoice to the sales journal for agreement of name and amount.
10. _____ the agreement between Johnson Wholesale Company and the client to determine whether the shipment is a sale or a consignment.
a. For each of the 12 blanks in procedures 1 through 10, identify the most appropriate term. No term can be used more than once.
b. For each of the procedures 1 through 10, identify the type of evidence that is being used.
(Objective 7-4)
TYPES OF AUDIT EVIDENCE
In deciding which audit procedures to use, the auditor can choose from eight broad categories of evidence, which are called types of evidence. Every audit procedure obtains one or more of the following types of evidence:
1. Physical examination
2. Confirmation
3. Documentation
4. Analytical procedures
5. Inquiries of the client
6. Recalculation
7. Reperformance
8. Observation Figure 7-1 (p. 180) shows the relationships among auditing standards, types of evidence, and the four evidence decisions. Auditing standards provide general guidance in three categories, including evidence accumulation. The types of evidence are broad categories of the evidence that can be accumulated. Audit procedures include the four evidence decisions and provide specific instructions for the accumulation of evidence.
Physical examination is the inspection or count by the auditor of a tangible asset. This type of evidence is most often associated with inventory and cash, but it is also appli - cable to the verification of securities, notes receivable, and tangible fixed assets. There is a distinction in auditing between the physical examination of assets, such as market - able securities and cash, and the examination of documents, such as cancelled checks and sales documents. If the object being examined, such as a sales invoice, has no inherent value, the evidence is called documentation. For example, before a check is signed, it is a document; after it is signed, it becomes an asset; and when it is cancelled, it becomes a document again. For correct auditing terminology, physical examination of the check can occur only while the check is an asset. Physical examination is a direct means of verifying that an asset actually exists (existence objective), and to a lesser extent whether existing assets are recorded (completeness objective). It is considered one of the most reliable and useful types of audit evidence. Generally, physical examination is an objective means of ascertaining both the quantity and the description of the asset. In some cases, it is also a useful method for evaluating an asset’s condition or quality. However, physical examination is not sufficient evidence to verify that existing assets are owned by the client (rights and obligations objective), and in many cases the auditor is not qualified to judge qualitative factors such as obsolescence or authenticity (realizable value objective). Also, proper valuation for financial statement purposes usually cannot be determined by physical examination (accuracy objective). Confirmation describes the receipt of a direct written response from a third party verifying the accuracy of information that was requested by the auditor. The response may be in electronic or paper form. The request is made to the client, and the client asks the third party to respond directly to the auditor. Because confirmations come from sources independent of the client, they are a highly regarded and often-used type of evidence. However, confirmations are relatively costly to obtain and may cause some inconvenience to those asked to supply them. Therefore, they are not used in every instance in which they are applicable. Auditors decide whether or not to use confirmations depending on the reliability needs of the situation as well as the alternative evidence available. Traditionally, con - firmations are seldom used in the audit of fixed asset additions because these can be verified adequately by documentation and physical examination. Similarly, confirma - tions are ordinarily not used to verify individual transactions between organizations, such as sales transactions, because the auditor can use documents for that purpose. Naturally, there are exceptions. Assume the auditor determines that there are two extraordinarily large sales transactions recorded 3 days before year-end. Confirmation of these two transactions may be appropriate. When practical and reasonable, U.S. auditing standards require the confirmation of a sample of accounts receivable. This requirement exists because accounts receivable usually represent a significant balance on the financial statements, and confirmations are a highly reliable type of evidence. Confirmation of accounts receivable is not required by international auditing standards, and is one example of differences between U.S. and international auditing standards. Confirmation of accounts receivable is discussed further in Chapter 16. Although confirmation is not required under U.S. GAAS for any account other than accounts receivable, this type of evidence is useful in verifying many types of information. The major types of information that are often confirmed, along with the source of the confirmation.
39. Adjustments A physical count reveals only $480 of roofing supplies on hand. Depreciation for Marc...
Adjustments A physical count reveals only $480 of roofing supplies on hand. Depreciation for March is $250. Unearned service revenue amounted to $260 at March 31. Accrued salaries are $700.
40. 13-19 LO 2 Inherent risks related to debt obligations primarily include which of the following?...
13-19 LO 2 Inherent risks related to debt obligations primarily include which of the following?
a. Debt is not properly authorized.
b. Interest expense is not properly accrued.
c. Debt covenants are not properly disclosed.
d. Debt is not appropriately classified as short or long term.
e. All of the above are inherent risks related to debt obligations.
41. Average monthly market demand
M/S Tubes Ltd is the manufactures of picture tubes for T.V. The following are the details of their operations:
Average monthly market demand: 2,000 tubes
Ordering cost Rs. 100 per order
Inventory–carrying cost 20% p.a.
Cost of tubes Rs. 500 per tube
Normal usage 100 tubes per week
Maximum usage 200 tubes per week
Minimum usage 50 tubes per week
Lead time to supply 6 to 8 weeks
Compute from the above
1. EOQ. If the supplier is willing to supply quarterly 1,500 units at a discount of 5% is it worth accepting?
2. Maximum level of stock
3. Minimum level of stock
4. Reorder level
42. Audit fees is to be apportioned on the basis of 1.time ratio
Audit fees is to be apportioned on the basis of
1.time ratio
2.allocated fully to post-incorporation period
3.(a) and (b)
4.(a) or (b)
43. Which of the following statements is true regarding arrays and vectors? A. Arrays contain one data..
Which of the following statements is true regarding arrays and vectors?
A. Arrays contain one data type and are dynamic in length. Vectors can have multiple data types and are fixed in length.
B. Arrays can have multiple data types and are fixed in length. Vectors have one data type and are dynamic in length.
C. Arrays can have multiple data types and are dynamic in length. Vectors have one data type and are fixed in length.
D. Arrays contain one data type and are fixed in length. Vectors can have multiple data types and are dynamic in length.
44. Investment X offers to pay you $4,300 per year for
Investment X offers to pay you $4,300 per year for 9 years, whereas Investment Y offers to pay you $6,100 per year for 5 years. Which of these cash flow streams has the higher present value if the discount rate is 6 percent? If the discount rate is 22 percent?
45. 41) Arrange the following in the correct sequence, from smallest to largest: a) megabyte – kilobyte.
41) Arrange the following in the correct sequence, from smallest to largest:
42) Primary storage stores which of the following for very brief periods of time?
a) data to be processed by the CPU
b) instructions for the CPU as to how to process the data
c) operating system programs that manage various aspects of the computer’s operations
d) all of the above
43) Which of the following is not stored in primary storage?
a) data to be processed by the CPU
b) instructions for the CPU as to how to process the data
c) archival data
d) operating system programs
e) none of the above
44) The part of primary storage that holds a software program (or portion of it) and small amounts of data when they are brought from secondary storage are called:
a) read-only memory
b) random access memory
c) cache memory
d) registers
e) flash memory
45) Random access memory is _____ and _____.
a) volatile, temporary
b) nonvolatile, permanent
c) nonvolatile, temporary
d) volatile, permanent
e) volatile, inexpensive
46) Which of the following is not a type of primary storage?
a) random access memory
b) registers
c) cache
d) read-only memory
e) optical
47) The type of primary storage, closest to the CPU where the computer can temporarily store blocks of data used most often is called:
a) read-only memory
b) registers
c) random access memory
d) cache memory
e) flash memory
48) The type of primary storage where certain critical instructions are safeguarded because the storage is nonvolatile and the instructions can be read only by the computer and not changed by the user is called:
a) read-only memory
b) random access memory
c) cache memory
d) registers
e) flash memory
49) Which of the following is not a characteristic of secondary storage?
a) nonvolatile
b) more cost effective than primary storage
c) slower than primary storage
d) can utilize only chips as its medium
e) none of the above
50) To access a specific piece of information, _____ are usually faster than _____.
a) sequential access storage devices, direct access storage devices
b) direct access storage devices, sequential access storage devices
c) streaming tape devices, DVDs
d) optical storage devices, random access memory
e) sequential access storage devices, thumb drives
46. Genuine Spice Inc. began operations on January 1, 2016. The company produces eight-ounce bottles...
Genuine Spice Inc. began operations on January 1, 2016. The company produces eight-ounce bottles of hand and body lotion called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $100 per case. There is a selling commission of $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows:
diReCT maTeRiaLS
Cost Behavior units per Case Cost per unit direct materials Cost per Case
Cream base Variable 100 ozs. $0.02 $ 2.00
Natural oils Variable 30 ozs. 0.30 9.00
Bottle (8-oz.) Variable 12 bottles 0.50 6.00
$17.00
diReCT LaBoR
department Cost Behavior Time per Case Labor Rate per hour direct Labor Cost per Case
Mixing Variable 20 min. $18.00 $6.00
Filling Variable 5 14.40 1.20
25 min. $7.20
47. john parsons 123-45-6781 and george smith 123456782 are 70% and 30% owners
john parsons 123-45-6781 and george smith 123456782 are 70% and 30% owners
48. If a company wants to enhance the profitability of differentiating its branded product offering...
If a company wants to enhance the profitability of differentiating its branded product offering from rivals by offering say 500 models, then it should seek to reduce the costs associated with producing 500 models at its plants by
49. Muskoge Company uses a process-costing system. The company manufactures a product that is processed.
Muskoge Company uses a process-costing system. The company manufactures a product that is processed in two departments: Molding and Assembly. In the Molding Department, direct materials are added at the beginning of the process; in the Assembly Department, additional direct materials are added at the end of the process. In both departments, conversion costs are incurred uniformly throughout the process. As work is completed, it is transferred out. The following table summarizes the production activity and costs for February: Molding Assembly Beginning inventories: Physical units 10,000 8,000 Costs: Transferred in - $45,200 Direct Materials $22,000 - Conversion costs $13,800 16,800 Current Production: Units Started $25,000 ? Units transferred out 30,000 35,000 Costs: Transferred in - ? Direct Materials $56,250 $39,550 Conversion Costs $103,500 $136,500 Percentage of Completion: Beginning Inventory 40% 50% Ending Inventory 80 50 c. Unit cost calculation. In your calculations, unit costs should be rounded to four decimal places. Use these numbers for subsequent calculations. $
50. The challenge in all managerial situations is to take what can be done and what should be done...
The challenge in all managerial situations is to take what can be done and what should be done and find