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How to Excel in Cost Accounting Assignments
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21. Ms. Tejal Gandhi has decided that the stock of SmallCapMs. Tejal Gandhi has decided that the stock of SmallCap Inc is overvalued at $4 a share and wants to sell it short. Since the price is relatively low, short sales cannot be executed on margin, so Ms. Gandhi must put up the entire value of the stock when it is sold short.
a) What is the percentage loss if the price of the stock rises to $8?
b) What is the percentage loss if the price of the stock rises to $10?
c) What is the percentage gain if the company goes bankrupt and is dissolved?
d) What are the maximum percentage gain the short seller can earn and the largest percentage loss the short seller can sustain?
e) From the short seller’s perspective, what are the best and worst case scenarios?
22. Deacon Company is a merchandising company that is preparing a budget for the three-month period e...
Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30th. The following information is available
Deacon Company
Balance Sheet
March 31
Assets
Cash $ 62,000
Accounts receivable 43,600
Inventory 46,000
Buildings and equipment, net of depreciation 107,000
Total assets $ 258,600
Liabilities and Stockholders’ Equity
Accounts payable $ 63,600
Common stock 70,000
Retained earnings 125,000
Total liabilities and stockholders’ equity $ 258,600
Budgeted Income Statements
April May June
Sales $ 120,000 $ 130,000 $ 150,000
Cost of goods sold 72,000 78,000 90,000
Gross margin 48,000 52,000 60,000
Selling and administrative expenses 24,900 26,400 29,400
Net operating income $ 23,100 $ 25,600 $ 30,600
Budgeting Assumptions:
60% of sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale.
Budgeted sales for July are $160,000.
10% of merchandise inventory purchases are paid in cash at the time of the purchase. The remaining 90% of purchases are credit purchases. All purchases on credit are paid in the month subsequent to the purchase.
Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.
Depreciation expense is $1,900 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.
Required:
1. Calculate the expected cash collections for April, May, and June.
2. Calculate the budgeted merchandise purchases for April, May, and June.
3. Calculate the expected cash disbursements for merchandise purchases for April, May, and June.
4. Prepare a budgeted balance sheet at June 30th. (Hint: You need to calculate the cash paid for selling and administrative expenses during April, May, and June to determine the cash balance in your June 30th balance sheet.)
23. Review case 3.3 The Anonymous Caller , p. 63-65. Compose brief answers, approximately 45 to 90...
Review case 3.3 The Anonymous Caller, p. 63-65.
Composebrief answers, approximately 45 to 90 words to the following Required questions related to this case:
• 1
• 2
• 4
• 5
• 7
• 8
• Professional Judgment Question: 11
•
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The Anonymous Caller CASE 3.3 The Anonymous Caller Recognizing It’s a Fraud and Evaluating What to Do MARK S. BEASLEY • FRANK A. BUCKLESS • STEVEN M. GLOVER • DOUGLAS F. PRAWITT LEARNING OBJECTIVES After completing and discussing this case you should be able to [1] Appreciate real-world pressures for meeting financial expectations [2] Distinguish financial statement fraud from aggressive accounting [3] Identify alternative actions when confronted with suspected financial statement fraud [4] Develop arguments to resist or prevent inappropriate accounting techniques BACKGROUND It was 9:30 A.M. on a Monday morning when the call came through. “Hi Dr. Mitchell, do you have a minute?” “Sure,” the professor replied. “I am one of your former students, but if you don’t mind, I would prefer to remain anonymous. I think it is best for both of us if I not reveal my name or company to you. I am concerned that the senior executives of the company where I serve as controller just provided our local bank fraudulently misstated financial statements. I need some fast advice about what to do. Currently, I am on my cell phone and need help evaluating my next step before I head to my office this morning. May I briefly describe what’s going on and get some input from you?” she asked. “Go ahead, let me see if there is some way I can help,” responded Dr. Mitchell. “I am the controller of a privately-held, small, start-up company that I joined three and onehalf months ago. On Friday of last week, the company’s chief executive officer (CEO), the vice president of operations, and the chief financial officer (CFO) met with representatives of the bank that funds the company’s line of credit. One of the purposes of the meeting was to provide our most recent quarterly financial statements. The company is experiencing a severe cash shortage, and the bank recently halted funding the line of credit until we could present our most recent operating results. It was at that meeting, just three days...
24. Compute the total cost IAP will incur to (a) purchase the needed materials and then (b) assemble and...
Indianapolis Auto Parts (IAP) has a Seat Manufacturing Department that uses activity-based costing. IAP’s system has the following activities:
Activity Allocation Base Cost Allocation Rate
Purchasing Number of purchase orders $50.00 per purchase order
Assembling Number of parts $0.50 per part
Packaging Number of finished seats $1.00 per finished seat
Each auto seat has 20 parts. Direct materials cost per seat is $1. Direct labor cost per seat is $10. Suppose Ford has asked IAP for a bid on 50,000 built-in baby seats that would be installed as an option on some Ford SUVs. IAP will use a total of 200 purchase orders if Ford accepts IAP’s bid.
Requirements
1. Compute the total cost IAP will incur to (a) purchase the needed materials and then (b) assemble and (c) package 50,000 baby seats. Also, compute the average cost per seat.
2. For bidding, IAP adds a 30% markup to total cost. What total price will IAP bid for the entire Ford order?
3. Suppose that instead of an ABC system, IAP has a traditional product costing system that allocates indirect costs other than direct materials and direct labor at the rate of $65 per direct labor hour. The baby-seat order will require 10,000 direct labor hours. What price will IAP bid using this system’s total cost?
4. Use your answers to Requirements 2 and 3 to explain how ABC can help IAP make a better decision about the bid price to offer Ford.
25. He following data for two products of Gitano Manufacturing Overhead Cost Product A Number of unit...
1-4 he following data for two products of Gitano Manufacturing Overhead Cost Product A Number of units produced Product B labor cost (@$24 per DLH) 10.000 units 2.000 units Direct cost Direct materials 020 DUH per unit 025 DLH per unit $2 per unit $3 per unit. Activity Machine setup $121,000 handling 48,000 Materials Quality control inspections 80,000 $249,000 S3488 per un prot t Exercise 17-10 Using ABC for str decisions
26. 36. Gunnar Company gathered the following reconciling information in preparing its September bank...
36. Gunnar Company gathered the following reconciling information in preparing its September bank reconciliation. Calculate the adjusted cash balance per books on September 30.
Cash balance per books, 9/30 $2,750
Deposits in transit 200
Notes receivable and interest collected by bank 630
Bank charge for check printing 50
Outstanding checks 1,250
NSF check 290
a.$3,040.
b.$5,130.
c.$3,690.
d.$1,590.
37. Which of the following would be deducted from the balance per books on a bank reconciliation?
A. outstanding checks
B. deposits in transit
C. notes collected by the bank
D. service charges
38. The following data were gathered to use in reconciling the bank account of Savannah Company:
Balance per bank $16,750
Balance per company records 16,125
Bank service charges 80
Deposit in transit 2,195
NSF check 950
Outstanding checks 3,850
What is the adjusted balance on the bank reconciliation?
a.$15,095
b.$15,720
c.$14,470
d.$10,705
39. An intangible asset is one that has a physical existence.
True or False
41. The double-declining-balance method is an accelerated depreciation method.
True or False
42. Patents are exclusive rights to produce and sell goods with one or more unique features.
True or False
43. The difference between the balance in a fixed asset account and its related accumulated depreciation account is the asset's book value.
True or False
44. Though a piece of equipment is still being used, the equipment should be removed from the accounts if it has been fully depreciated.
True or False
45. When a property, plant, and equipment asset is sold for cash, any gain or loss on the asset sold should be recorded.
True or False
46. The entry to record the disposal of fixed assets will include a credit to accumulated depreciation.
True or False
27. In 2017, Margaret and John Murphy (age 66 and 68, respectively) are married taxpayers who file a...
In 2017, Margaret and John Murphy (age 66 and 68, respectively) are married taxpayers who file a joint tax return with AGl of $25,400. During the year they incurred the following expenses:
Medical insurance premiums $1,150
Premiums on an insurance policy that pays $100 per
day for each day Margaret is hospitalized 400
Medical care lodging (two people, one night) 65
Hospital bills 2,100
Doctor bills 850
Dentist bills 175
Prescription drugs and medicines 340
Psychiatric care 350
In addition, they drove 88 miles for medical transportation, and their insurance company reimbursed them $900 for the above expenses. On the following segment of Schedule A of Form 1040, calculate the Murphy's medical expense deduction
28. Which of the following statements about data flow diagrams is not true? a. Processes should always..
Which of the following statements about data flow diagrams is not true?
a. Processes should always be numbered and named.
b. A context diagram cannot include any data stores.
c. Data flows should be labeled with noun phrases.
d. Data flow diagrams incorporate four symbols.
In creating a data flow diagram for a course registration process, which of the following is
most likely to be an external entity?
a. Parents
b. Student
c. Registration system
d. Bank
29. A method of stock valuation seldom used by companies is a. Standard cost
A method of stock valuation seldom used by companies is
a. Standard cost
b. FIFO
c. LIFO
d. Weighted average cost
30. Suppose that on January 1, Roots Ltd . paid cash of $30,000 for computers that are expected to...
Suppose that on January 1, Roots Ltd . paid cash of $30,000 for computers that are expected to remain useful for three years. At the end of three years, the computers values are expected to be zero. 1. Make journal entries to record (a) the purchase of the computers on January 1, and (b) the annual depreciation on December 31. Include dates and explanations, and use the following accounts: Computer Equipment; Accumulated Depreciation-Computer Equipment; and Depreciation Expense-Computer Equipment. 2. Post to the accounts and show their balances at December 31. 3. What is the computers carrying amount at December 31? 4. Which account(s) will Roots report on the income statement for the year? Which accounts will appear on the balance sheet of December 31? Show the amount to report for each item on both financial statements.
31. Green Company purchased a piece of machinery on credit for $10,000. Briefly state the way this...
Green Company purchased a piece of machinery on credit for $10,000. Briefly state the way this transaction affects the company’s basic accounting equation.View Solution:
Green Company purchased a piece of machinery on credit for
32. Stockton Company Adjusted Trial Balance December 31, Cash Accounts Receivable Prepaid Expenses Eq...
Stockton Company Adjusted Trial Balance December 31, Cash Accounts Receivable Prepaid Expenses Equipment Accumulated Depreciation Accounts payable Notes Payable Common Stock Retained Earnings Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Depreciation Expense Miscellaneous Expense 6,054 2,653 668 14,651 506 3,462 802 497 217 65 1,481 1,463 4,192 1,000 12,732 8,707
33. Turner Company ended its fiscal year on July 31, 2012.
Turner Company ended its fiscal year on July 31, 2012. The company’s adjusted trial balance as of the end of its fiscal year is as shown below.
Instructions
(a) Prepare the closing entries using page J15.
(b) Post to Owner’s Capital and No. 350 Income Summary accounts. (Use the three-column form.)
(c) Prepare a post-closing trial balance at July31.
34. Journalize the above transactions. Torrealba uses straight-line depreciation for buildings and...
At December 31, 2014, Torrealba Company reported the following as plant assets.
Land $ 2,000,000
Buildings $20,000,000
Less: Accumulated depreciation—buildings 8,000,000 12,000,000
Equipment 30,000,000
Less: Accumulated depreciation—equipment 4,000,000 26,000,000
Total plant assets $40,000,000
During 2015, the following selected cash transactions occurred.
April 1 Purchased land for $1,200,000.
May 1 Sold equipment that cost $450,000 when purchased on January 1, 2011. The equipment was sold for $260,000.
June 1 Sold land purchased on June 1, 2005, for $1,000,000. The land cost $340,000.
July 1 Purchased equipment for $1,500,000.
Dec. 31 Retired equipment that cost $300,000 when purchased on December 31, 2005. No salvage value was received.
Instructions
(a)Journalize the above transactions. Torrealba uses straight-line depreciation for buildings and equipment. The buildings are estimated to have a 50-year useful life and no salvage value. The equipment is estimated to have a 10-year useful life and no salvage value. Update depreciation on assets disposed of at the time of sale or retirement.
(b)Record adjusting entries for depreciation for 2015.
(c)Prepare the plant assets section of Torrealba"s balance sheet at December 31, 2015.
35. Multiple choice
Question 1
The degree of operating leverage is computed as:
A. percent change in operating profit divided by percent change in net income.
B. percent change in volume divided by percent change in operating profit.
C. percent change in EPS divided by percent change in operating income.
D. percent change in operating income divided by percent change in volume.
Question 2
Financial leverage deals with:
A. the relationship of fixed and variable costs.
B. the relationship of debt and equity in the capital structure.
C. the entire income statement.
D. the entire balance sheet.
Question 3
A conservative financing plan involves:
A. heavy reliance on debt.
B. heavy reliance on equity.
C. high degree of financial leverage.
D. high degree of combined leverage.
Question 4
If EBIT equals $160,000 and interest equals $30,000, what is the degree of financial leverage?
A. 5.33x
B. 1.23x
C. 0.8125x
D. 4.33x
36. Applied overhead was 30% of total manufacturing costs. The Work in Process inventory at January 1...
Farber Corporation uses a job-order cost system. The information below is from the financial records of the company for last year:
Total manufacturing costs $2,500,000
Cost of goods manufactured $2,425,000
Predetermined overhead rate 80% of direct labor cost
Applied overhead was 30% of total manufacturing costs. The Work in Process inventory at January 1 was 75% of the Work in Process inventory at December 31. Farber Company"s total direct labor cost was:
A) $750,000
B) $600,000
C) $900,000
D) $937,500
37. Dobbs Wholesale Antiques makes all sales under terms of FOB
Dobbs Wholesale Antiques makes all sales under terms of FOB shipping point. The company usually ships inventory to customers approximately one week after receiving the order. For orders received late in December, Kathy Dobbs, the owner, decides when to ship the goods. If profits are already at an acceptable level, Dobbs delays shipment until January. If profits for the current year are lagging behind expectations, Dobbs ships the goods during December.
Requirements
1. Under Dobbs’ FOB policy, when should the company record a sale?
2. Do you approve or disapprove of Dobbs’ manner of deciding when to ship goods to customers and record the sales revenue? If you approve, give your reason. If you disapprove, identify a better way to decide when to ship goods. (There is no accounting rule against Dobbs’ practice.)
