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8 months ago
Good Grades in Accounting
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Online course help
1.. Examine the following summary of the U.S. balance of payments for 2000 (in $ billion) and fill in...Examine the following summary of the U.S. balance of payments for 2000 (in $ billion) and fill in the blankentries.
2. Compute trend percents for the above accounts, using 2011 as the base year.
Compute trend percents for the above accounts, using 2011 as the base year.
3. Sanlucas, Inc., provides home inspection services to its clients. The company’s trial balance...
Sanlucas, Inc., provides home inspection services to its clients. The company’s trial balance dated
June 1, 2011, is shown below:
SANLUCAS, INC. TRIAL BALANCE JUNE 1, 2011
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,100
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,600
Inspection supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 850
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600
Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800
Inspection revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,350
Salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,900
Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
Testing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,700
$16,000 $16,000
Sanlucas engaged in the following transactions in June:
June 4 Borrowed cash from Community Bank by issuing a $1,500 note payable.
June 9 Collected a $1,600 account receivable from Nina Lesher.
June 10 Purchased $150 of inspection supplies on account.
June 17 Billed home owners $1,650 for inspection services. The entire amount is due on July 17.
June 25 Paid WLIR Radio $200 for ads to be aired on June 27.
June 28 Recorded and paid $1,300 for testing expenses incurred in June.
June 30 Recorded and paid June salaries of $1,100.
Instructions
a. Record the company’s June transactions in general journal form. Include a brief explanation of the transaction as part of each journal entry.
b. Post each entry to the appropriate ledger accounts (use the T account format illustrated in Exhibit 3–8 on page 108).
c. Prepare a trial balance dated June 30, 2011. (Hint: Retained Earnings will be reported at the same amount as on June 1. Accounting for changes in the Retained Earnings account resulting from revenue, expense, and dividend activities is discussed in Chapter 5.)
d. Has the company paid all of the dividends that it has declared? Explain.
4. Problem
Smith Manufacturing has 27,000 labor hours available for producing X and Y. Consider the following information:
Product A Product B
Required labor time per unit (hours) 2 3
Maximum demand (units) 6,000 8,000
Contribution margin per unit $5.00 $6.00
Contribution margin per labor hour $2.50 $2.00
If Smith f...
5. Thai Bay's computer system generated the following trial balance on December 31, 20
Thai Bay's computer system generated the following trial balance on December 31, 2011. The companys manager knows something is wrong with the trial balance because it does not show any balance for Goods in Process Inventory but does show balances for the Factory Payroll and Factory Overhead accounts. Debit Credit Cash $ 48,000 Accounts receivable 42,000 Raw materials inventory 26,000 Goods in process inventory 0 Finished goods inventory 9,000 Prepaid rent 3,000 Accounts payable $ 10,500 Notes payable 13,500 Common stock 30,000 Retained earnings 87,000 Sales 180,000 Cost of goods sold 105,000 Factory payroll 16,000 Factory overhead 27,000 Operating expenses 45,000 Totals $ 321,000 $ 321,000 After examining various files, the manager identifies the following six source documents that need to be processed to bring the accounting records up to date. Materials requisition 21-3010: $ 4,600 direct materials to Job 402 Materials requisition 21-3011: $ 7,600 direct materials to Job 404 Materials requisition 21-3012: $ 2,100 indirect materials Labor time ticket 6052: $ 5,000 direct labor to Job 402 Labor time ticket 6053: $ 8,000 direct labor to Job 404 Labor time ticket 6054: $ 3,000 indirect labor Jobs 402 and 404 are the only units in process at year-end. The predetermined overhead rate is 200% of direct labor cost. references 1.value: 2.00 points a. Direct materials costs to Goods in Process Inventory. b. Direct labor costs to Goods in Process Inventory. c. Overhead costs to Goods in Process Inventory. d. Indirect materials costs to the Factory Overhead account. e. Indirect labor costs to the Factory Overhead account. Required: 1. Prepare journal entries to assign the above costs. (Omit the "$" sign in your response.) Date General Journal Debit Credit a. b. c. d. e. check my workeBook Links (4)references 2.value: 1.00 points 2.1 Determine the revised balance of the Factory Overhead account after making the entries in part 1. Determine whether there is any under- or overapplied overhead for the year. (Input the amount as positive value. Omit the "$" sign in your response.) $ 2.2 Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold, assuming the amount is not material. (Omit the "$" sign in your response.) Date General Journal Debit Credit Dec. 31 check my workeBook Links (4)references 3.value: 1.00 points 3. Prepare a revised trial balance. (The items in the Trial Balance should be grouped as follows: Assets, Liabilities (in order of their liquidity), Equity, Revenues, and Expenses. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) THAI BAY COMPANY Trial Balance December 31, 2011 Debit Credit $ $ Totals $ $ check my workeBook Links (4)references 4.value: 1.00 points 4.1 Prepare an income statement for year 2011. (Amounts to be deducted should be indicated by a minus sign. Omit the "$" sign in your response.) THAI BAY COMPANY Income Statement For Year Ended December 31, 2011 $ $ 4.2 Prepare a balance sheet as of December 31, 2011. (Be sure to list the assets and liabilities in order of their liquidity. Omit the "$" sign in your response.) THAI BAY COMPANY Balance Sheet December 31, 2011 Assets $ Inventories $ Total Assets $ Liabilities and Equity $ Total Liabilities Total Stockholders' Equity Total Liabilities and Equity $
6. EUP and why it is necessary to use EUP in process costing?
Explain in simple terms the notion of equivalent units of production(EUP). Why is it necessary to use EUP in process costing
7. Why does the cost per return differ at each of the three volume levels?
Will Jones, LLP is a small CPA firm that focuses primarily on preparing tax returns for small businesses. The company pays a $500 annual fee plus $10 per tax return for a license to use Mega Tax software.
Required
1. What is the company"s total annual cost for the Mega Tax software if 300 returns are filed? If 400 returns are filed? If 500 returns are filed?
2. What is the company"s cost per return for the Mega Tax software if 300 returns are filed? If 400 returns are filed? If 500 returns are filed?
3. Why does the cost per return differ at each of the three volume levels?
8. Penny, Inc. employs a process costing system. Direct materials are added at the beginning ...
Penny, Inc. employs a process costing system. Direct materials are added at the beginning of the process. Here is information about July's activities:
On July 1:
Beginning inventories 850 units, 60% complete
Direct materials cost $5,000
Conversion costs $4,000
During July:
Number of units started 15,000
Direct materials added $155,000
Conversion costs added $83,520
On July 31:
Ending inventories 1,600 units, 40% complete
Using the FIFO method, the cost per equivalent unit for materials used during July was
a. $9.78
b. $10.33
c. $10.78
d. $10.65
9. First questionsecond question During December, Moulding Corporation incurred $78,000 of actual M...
question
During December, Moulding Corporation incurred $78,000 of actual Manufacturing Overhead costs. During the same period, the Manufacturing Overhead applied to Work in Process was $76,000.
Required:
Prepare journal entries to record the incurrence of manufacturing overhead and the application of manufacturing overhead to Work in Process. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Weatherhead Inc. has provided the following data for the month of March. There were no beginning inventories, consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month. Cost of Work In Finished Goods Process Goods Sold $ 4,240 $14,720 $41,880 $ 60,840 10,440 29,440 83,840 123,720 Total Direct materials Direct labor Manufacturing overhead applied Total 5,830 12,010 34,980 52,820 $20,510 $56,170 $160,700 $237, 380 Manufacturing overhead for the month was overapplied by $3,200 The Corporation allocates any underapplied or overapplied manufacturing overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the manufacturing overhead applied during the month in those accounts The work in process inventory at the end of March after allocation of any underapplied or overapplied manufacturing overhead for the month is closest to: Round intermediate percentage computations to the nearest whole percent.) Multiple Choice $20,818 $20,229 $20,747 $20,158
10. The following graph plots the current security market line (SML) and indicates the return that in...
The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows. REQUIRED RATE OF RETURNIPercent) 16.0 12.0 Return on HC 's Stock 1.0 Value CAPM Elements Risk-free rate (rRF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock An analyst believes that inflation is going to increase by 3.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current sML Then on the granh, use the green points (rectangle symbols) to plot
11. (Objective 16-4) In the confirmation of accounts receivable for the Reliable Service Company, 85...
(Objective 16-4) In the confirmation of accounts receivable for the Reliable Service Company, 85 positive and no negative confirmations were mailed to customers. This represents 35% of the dollar balance of the total accounts receivable. Second requests were sent for all nonresponses, but there were still 10 customers who did not respond. The decision was made to perform alternative procedures on the 10 unanswered confirmation requests. An assistant is requested to conduct the alternative procedures and report to the senior auditor after he has completed his tests on two accounts. He prepared the following information for the audit files:
Required
a. If you are called on to evaluate the adequacy of the sample size, the type of confirma - tion used, and the percent of accounts confirmed, what additional information will you need?
b. Discuss the need to send second requests and perform alternative procedures for non - responses.
c. Evaluate the adequacy of the alternative procedures used for verifying the two non - responses.
(Objective 16-4)
CONFIRMATION OF ACCOUNTS RECEIVABLE
Confirmation of accounts receivable was a recurring concept in our discussion about designing tests of details of balances for accounts receivable. The primary purpose of accounts receivable confirmation is to satisfy the existence, accuracy, and cutoff objectives. Confirmations are one of the eight types of audit evidence introduced in Chapter 7. A confirmation is a direct written response from a third party in paper or electronic form, and they are considered to be highly reliable evidence because they are received directly from third parties. Although an oral response provides audit evidence, it is not considered a confirmation. U.S. auditing standards indicate that auditors should use external confirmations for material accounts receivable. Confirmation may not be appropriate in the following circumstances:
1. The auditor considers confirmations ineffective evidence because response rates will likely be inadequate or unreliable. In certain industries, such as hospitals, response rates to confirmations are very low.
2. The combined level of inherent risk and control risk is low and other substantive evidence can be accumulated to provide sufficient evidence. If a client has effective internal controls and low inherent risk for the sales and collection cycle, the auditor should often be able to satisfy the evidence requirements by tests of controls, substantive tests of transactions, and analytical procedures. If the auditor decides not to confirm accounts receivable, the justification for doing so must be documented in the audit files. While U.S. auditing standards require the use of confirmations for accounts receivable in most circumstances, international auditing standards suggest, but do not require their use. This is one of the few notable difference between requirements of U.S. and international audit standards. In performing confirmation procedures, the auditor must first decide the type of confirmation to use. Positive Confirmation A positive confirmation is a communication addressed to the debtor requesting the recipient to confirm directly whether the balance as stated on the confirmation request is correct or incorrect. Figure 16-5 (p. 534) illustrates a positive confirmation in the audit of Hillsburg Hardware Co. Notice that this con - firmation is for one of the largest accounts on the aged trial balance in Figure 16-3 (p. 527). A blank confirmation form is a type of positive confirmation that does not state the amount on the confirmation but requests the recipient to fill in the balance or furnish other information. Because blank forms require the recipient to determine the information requested, they are considered more reliable than confirmations that include balance information. Blank forms are rarely used in practice because they often result in lower response rates. An invoice confirmation is another type of positive confirmation in which an individual invoice is confirmed, rather than the customer’s entire accounts receivable balance. Many customers use voucher systems that allow them to confirm individual invoices but not balance information. As a result, the use of invoice confirmations may improve confirmation response rates. Invoice confirmations also result in fewer timing differences and other reconciling items than balance confirmations. However, invoice confirmations have the disadvantage of not directly confirming ending balances. Sales to major customers often involve special terms or side-agreements for the return of goods that may affect the amount and timing of revenue to be recognized from the sale. When this has been identified as a significant risk, positive confirmations often request the customer to confirm the existence of any special terms or sideagreements between the client and customer. Negative Confirmation A negative confirmation is also addressed to the debtor but requests a response only when the debtor disagrees with the stated amount. Figure 16-6 (p. 535) illustrates a negative confirmation in the audit of Hillsburg Hardware Co. that has been attached to a customer’s monthly statement. A positive confirmation is more reliable evidence because the auditor can perform follow-up procedures if a response is not received from the debtor. With a negative confirmation, failure to reply must be regarded as a correct response, even though the debtor may have ignored the confirmation request. Offsetting the reliability disadvantage, negative confirmations are less expensive to send than positive confirmations, and thus more can be distributed for the same total cost. Negative confirmations cost less because there are no second requests and no follow-up of nonresponses. The determination of which type of confirmation to use is an auditor’s decision, and it should be based on the facts in the audit. Auditing standards state that it is acceptable to use negative confirmations only when all of the following circum stances are present:
1. The auditor has assessed the risk of material misstatement as low and has obtained sufficient appropriate evidence regarding the design and operating
effectiveness of controls relevant to the assertion being tested by the con - firmation procedure.
2. The population of items subject to negative confirmation procedures is made up of a large number of small, homogenous account balances, transactions, or other items.
3. The auditor expects a low exception rate.
4. The auditor reasonably believes that recipients of negative confirmation requests will give the requests adequate consideration. For example, if the response rate to positive confirmations in prior years was extremely high or if there are high response rates on audits of similar clients, it is likely that recipients will give negative confirmations reasonable consideration as well. Typically, when negative confirmations are used, the auditor puts considerable emphasis on the effectiveness of internal controls, substantive tests of transactions, and analytical procedures as evidence of the fairness of accounts receivable, and assumes that the large majority of the recipients will provide a conscientious reading and response to the confirmation request. Negative confirmations are often used for audits of hospitals, retail stores, banks, and other industries in which the receivables are due from the general public. Auditors may use a combination of negative and positive confirmations by sending the latter to accounts with large balances and the former to those with small balances.
The auditor’s choice of confirmation falls along a continuum, starting with the use of no confirmations in some circumstances, to using only negatives, to using both negatives and positives, to using only positives. The primary factors affecting the auditor’s decision are the materiality of total accounts receivable, the number and size of individual accounts, control risk, inherent risk, the effectiveness of confirmations as audit evidence, and the availability of other audit evidence. The most reliable evidence from confirmations is obtained when they are sent as close to the balance sheet date as possible. This permits the auditor to directly test the accounts receivable balance on the financial statements without making any inferences about the transactions taking place between the confirmation date and the balance sheet date. However, as a means of completing the audit on a timely basis, it is often necessary to confirm the accounts at an interim date. This is permissible if internal controls are adequate and can provide reasonable assurance that sales, cash receipts, and other credits are properly recorded between the date of the confirmation and the end of the accounting period. The auditor is likely to consider other factors in making the decision, including the materiality of accounts receivable and the auditor’s exposure to lawsuits because of the possibility of client bankruptcy and similar risks. If the decision is made to confirm accounts receivable before year-end, the auditor typically prepares a roll-forward schedule that reconciles the accounts receivable balance at the confirmation date to accounts receivable at the balance sheet date. In addition to performing analytical procedures on the activity during the intervening period, it may be necessary to test the transactions occurring between the confirmation date and the balance sheet date. The auditor can accomplish this by examining internal documents such as duplicate sales invoices, shipping documents, and evidence of cash receipts. Sample Size The major factors affecting sample size for confirming accounts receivable fall into several categories and include the following:
• Tolerable misstatement
• Inherent risk (relative size of total accounts receivable, number of accounts, prior-year results, and expected misstatements)
• Control risk
• Achieved detection risk from other substantive tests (extent and results of sub - stan tive tests of transactions, analytical procedures, and other tests of details)
