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27. Milano Pizza is a small neighborhood pizzeria that has a small area for...Milano Pizza is a small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria’s owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made. Data concerning the pizzeria’s costs appear below:
Fixed Cost per Month Cost per Pizza Cost per Delivery
Pizza ingredients $3.80
Kitchen staff $5,220
Utilities $630 $0.05
Delivery person $3.50
Delivery vehicle $540 $1.50
Equipment depreciation $275
Rent $1,830
Miscellaneous $820 $0.15
In November, the pizzeria budgeted for 1,200 pizzas at an average selling price of $13.50 per pizza and for 180 deliveries. Data concerning the pizzeria’s operations in November appear below:
Actual Results
Pizzas 1,240
Deliveries 174
Revenue $17,420
Pizza ingredients $4,985
Kitchen staff $5,281
Utilities $984
Delivery person $609
Delivery vehicle $655
Equipment depreciation $275
Rent $1,830
Miscellaneous $954
Required:
1. Prepare a flexible budget performance report that shows both activity variances and revenue and spending variances for the pizzeria for November.
2. Explain the activityvariances.
28. The Badger Motel, Inc. opened for business on May 1, 2014. Its trial balance before adjustment on...
Please post the adjusting entries in T accounts. The Badger Motel, Inc. opened for business on May 1, 2014. Its trial balance before adjustment on May 31 is as follows. In addition to those accounts listed on the trial balance, the chart of accounts for Badger Motel, Inc. also contains the following accounts and account numbers: No. 142 Accumulated Depreciation-Buildings, No. 158 Accumulated Depreciation-Equipment, No. 212 Salaries and Wages Payable, No. 230 Interest Payable, No. 631 Supplies Expense, No. 711 Depreciation Expense, No. 718 Interest Expense, and No. 722 Insurance Expense. Other data: Prepaid insurance is a 1-year policy starting May 1, 2014. A count of supplies shows $350 of unused supplies on May 31. Annual depreciation is $2, 640 on the buildings and $1, 500 on equipment. The mortgage interest rate is 12%. (The mortgage was taken out on May 1.) Two-thirds of the unearned rent revenue has been recognized for services performed. Salaries of $750 are accrued and unpaid at May 31
29. Tss Questi E1-29 (similar to) Emily Summers opened a medical practice. During July. the first mon...
tss Questi E1-29 (similar to) Emily Summers opened a medical practice. During July. the first month of operation, the business, titled Emily Summers. M.D., experienced the follow (click the icon to view the transactions.) Analyze the effects of these events on the accounting equation of the medical practice of Emily summers, M D Analyze the events chronologically, one transaction at a time. Beginning with the transaction on the 6th, calculate the balance in each account after a of the on the all equation (Complete only the necessary answer boxes for your lines. enter any zeros fo transaction lines down balances to zero balance accounts. entering a 0 for any balances Enter a decrease i with a minus l or used AP Accounts payable, Cap s Summers, Capital Exp Expense: Liabilities; Med sign Revenue, Sal. salaries; sup. Supplies; Withdr Summers, Withdrawals.) EQUITY ASSETS LIAB. Cash Med. Land AP Cap Withdr Service sal Rent Utilities Rev. Exp Exp. Exp Sup 75,000 75,000 Enter any number in the edit fields and then click Check Answer. Final Che Clear All 6 parts remaining
30. Tercer reports the following on one of its products. Direct materials standard (4 lbs. @ $2/lb.) $...
Tercer reports the following on one of its products.
Direct materials standard (4 lbs. @ $2/lb.) $ 8 per finished unit
Actual direct materials used (AQ) 300,000 lbs.
Actual finished units produced 60,000 units
Actual cost of direct materials used $ 535,000
31. Professional ethics and end-of-year actions. Phoenix Press produces consumer magazines. The house...
Professional ethics and end-of-year actions. Phoenix Press produces consumer magazines. The house and home division, which sells home-improvement and home-decorating magazines, has seen a 20% reduction in operating income over the past 9 months, primarily due to an economic recession and a depressed consumer housing market. The division’s controller, Sophie Gellar, has felt pressure from the CFO to improve her division’s operating results by the end of the year. Gellar is considering the following options for improving the division’s performance by year-end:
a. Cancelling two of the division’s least profitable magazines, resulting in the layoff of 25 employees.
b. Selling the new printing equipment that was purchased in January and replacing it with discarded equipment from one of the company’s other divisions. The previously discarded equipment no longer meets current safety standards.
c. Recognizing unearned subscription revenue (cash received in advance for magazines that will be delivered in the future) as revenue when cash is received in the current month (just before fiscal year-end) instead of showing it as a liability.
d. Reducing the liability and related expense related to employee pensions. This would increase the division’s operating income by 3%.
e. Recognizing advertising revenues that relate to January in December.
f. Switching from declining balance to straight-line depreciation to reduce depreciation expense in the current year.
1. What are the motivations for Gellar to improve the division’s year-end operating earnings?
2. From the point of view of the “Standards of Ethical Behavior for Practitioners of Management Accounting and Financial Management,” Exhibit 1-7 (page 17), which of the preceding items (a–f) are acceptable? Which are unacceptable?
3. What should Gellar do about the pressure to improve performance?
32. A staff member at a local grocery store was assigned the job of inspecting all containers of yogurt.
A staff member at a local grocery store was assigned the job of inspecting all containers of yogurt in the store to determine the number of days to expiry date for each container. Containers that had already expired but were still on the shelves were given a value of 0 for number of days to expiry. The following table gives the frequency distribution of the number of days to expiry date. Number of Days Number of Containers 0 to 5 32 6 to 11 67 12 to 17 44 18 to 23 20 24 to 29 11 a. How many containers of yogurt were inspected? b. Find the class midpoints. Do all of the classes have the same width? If so, what is this width? If not, what are the different class widths? c. Prepare the relative frequency and percentage distribution columns. d. What percentage of the containers will expire in less than 18 days? e. Explain why you cannot determine exactly how many containers have already expired. f. What is the largest number of containers that may have already expired?
33. Reporting preferred shares Ozark Distributing Company is primarily engaged in the wholesale...
Reporting preferred shares
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions. The following disclosure note appeared in the company’s 2016 annual report:
Required:
1. What amount of dividends is paid annually to a preferred shareholder owning 100 shares of the Series A preferred stock?
2. If dividends are not paid in 2017 and 2018, but are paid in 2019, what amount of dividends will the shareholder receive?
3. If the investor chooses to convert the shares in 2017, how many shares of common stock will the investor receive for his/her 100 shares?
4. If Ozark chooses to redeem the shares on June 18, 2017, what amount will the investor be paid for his/her 100 shares?
34. What is Bill's assessed value?
Bill Blake pays a property tax of $2,500. In his community, the tax rate is 55 mills. What is Bill's assessed value? Round to the nearest dollar.
35. Multiple choice
1. Airlines Scenario
An airline knows that there are two types of travelers: business travelers and vacationers. For a particular flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc.
Refer to Airlines Scenario. How much additional profit can the firm earn by charging each customer their willingness to pay relative to charging a flat price of $600 per ticket?
a. $15,000
b. $40,000
c. $70,000
d. $25,000
2. Price discrimination
a. is an attempt by a monopoly to prevent some customers from purchasing its product by charging a high price.
b. forces monopolies to charge a lower price as a result of government regulation.
c. is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices.
d. increases the consumer surplus associated with a monopolistic market.
3. Suppose that you run a house-painting company and currently have 2 workers painting a total of 4 houses per month. If you hire a third worker, 6 houses can be painted per month. If you hire a fourth worker, 9 houses can be painted, and a fifth and sixth worker will increase the number of houses painted to 13 and 15, respectively. Diminishing returns
a. set in when the fourth worker is hired.
b. set in when the fifth worker is hired.
c. set in when the sixth worker is hired.
d. have not yet set in because output is still increasing
4. Use the following table to answer this question.
Price Total Revenue
$10 $100
$12 $108
$14 $112
$16 $112
Demand is unit elastic when quantity demanded changes from
a. 10 to 9.
b. 9 to 8.
c. 8 to 7.
d. There is not enough information given to determine the correct answer.
36. Exercise 4-12 The ledger of Monty Corp. on July 31, 2017, includes the selected accounts below be...
Exercise 4-12 The ledger of Monty Corp. on July 31, 2017, includes the selected accounts below before adjusting entries have been prepared Debit Credit $16,000 Investment in Note Receivable 22,500 Supplies Prepaid Rent 6,000 Buildings 240,000 $130,000 Accumulated Depreciation-Buildings Unearned Service Revenue 10,800 An analysis of the company's accounts shows the following. 1. The investment in the notes receivable learns interest at a rate of 12% per year 2. Supplies on hand at the end of the month totaled $15,000. 3. The balance in Prepaid Rent represents 4 months of rent costs. 4. Employees were owed $3,500 related to unpaid salaries and wages. 5. Depreciation on buildings is $4,200 per year. 6. During the month, the company satisfied obligations worth $4,700 related to the Unearned Services Revenue. 7. Unpaid maintenance and repairs costs were $2,050. Prepare the adjusting entries at July 31 assuming that adjusting entries are made monthly. (If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
37. (Objective 7-3) Identify the two factors that determine the persuasiveness of evidence. How are...
(Objective 7-3) Identify the two factors that determine the persuasiveness of evidence. How are these two factors related to audit procedures, sample size, items to select, and timing?
(Objective 7-3)
PERSUASIVENESS OF EVIDENCE
Audit standards require the auditor to accumulate sufficient appropriate evidence to support the opinion issued. Because of the nature of audit evidence and the cost considerations of doing an audit, it is unlikely that the auditor will be completely convinced that the opinion is correct. However, the auditor must be persuaded that the opinion is correct with a high level of assurance. By combining all evidence from the entire audit, the auditor is able to decide when he or she is persuaded to issue an audit report. The two determinants of the persuasiveness of evidence are appropriateness and sufficiency. Appropriateness of evidence is a measure of the quality of evidence, meaning its relevance and reliability in meeting audit objectives for classes of transactions, account balances, and related disclosures. If evidence is considered highly appropriate, it is a great help in persuading the auditor that financial statements are fairly stated. Note that appropriateness of evidence deals only with the audit procedures selected. Appropriateness cannot be improved by selecting a larger sample size or different population items. It can be improved only by selecting audit procedures that are more relevant or provide more reliable evidence. Relevance of Evidence Evidence must pertain to or be relevant to the audit objective that the auditor is testing before it can be appropriate. For example, assume that the auditor is concerned that a client is failing to bill customers for shipments (completeness transaction objective). If the auditor selects a sample of duplicate sales invoices and traces each to related shipping documents, the evidence is not relevant for the complete - ness objective and therefore is not appropriate evidence for that objective. A relevant procedure is to trace a sample of shipping documents to related duplicate sales invoices to determine whether each shipment was billed. The second audit procedure is relevant because the shipment of goods is the normal criterion used for determining whether a sale has occurred and should have been billed. By tracing from shipping documents to duplicate sales invoices, the auditor can determine whether shipments have been billed to customers. In the first procedure, when the auditor traces from duplicate sales invoices to shipping documents, it is impossible to find unbilled shipments. Relevance can be considered only in terms of specific audit objectives, because evidence may be relevant for one audit objective but not for a different one. In the previous shipping example, when the auditor traced from the duplicate sales invoices to related shipping documents, the evidence was relevant for the occurrence transaction objective. Most evidence is relevant for more than one, but not all, audit objectives. Reliability of Evidence Reliability of evidence refers to the degree to which evidence can be believable or worthy of trust. Like relevance, if evidence is considered reliable it is a great help in persuading the auditor that financial statements are fairly stated. For example, if an auditor counts inventory, that evidence is more reliable than if management gives the auditor its own count amounts. Reliability, and therefore appropriateness, depends on the following six character - istics of reliable evidence:
1. Independence of provider. Evidence obtained from a source outside the entity is more reliable than that obtained from within. Communications from banks, attorneys, or customers is generally considered more reliable than answers obtained from inquiries of the client. Similarly, documents that originate from outside the client’s organization, such as an insurance policy, are considered more reliable than are those that originate within the company and have never left the client’s organization, such as a purchase requisition.
2. Effectiveness of client’s internal controls. When a client’s internal controls are effective, evidence obtained is more reliable than when they are weak. For example, if internal controls over sales and billing are effective, the auditor can obtain more reliable evidence from sales invoices and shipping documents than if the controls were inadequate.
3. Auditor’s direct knowledge. Evidence obtained directly by the auditor through physical examination, observation, recalculation, and inspection is more reliable than information obtained indirectly. For example, if the auditor calculates the gross margin as a percentage of sales and compares it with previous periods, the evidence is more reliable than if the auditor relies on the calculations of the controller.
4. Qualifications of individuals providing the information. Although the source of information is independent, the evidence will not be reliable unless the individual providing it is qualified to do so. Therefore, communications from attorneys and bank confirmations are typically more highly regarded than accounts receivable confirmations from persons not familiar with the busi - ness world. Also, evidence obtained directly by the auditor may not be reliable if the auditor lacks the qualifications to evaluate the evidence. For example, examining an inventory of diamonds by an auditor not trained to distinguish between diamonds and glass is not reliable evidence for the existence of diamonds.
5. Degree of objectivity. Objective evidence is more reliable than evidence that requires considerable judgment to determine whether it is correct. Examples of objective evidence include confirmation of accounts receivable and bank balances, the physical count of securities and cash, and adding (footing) a list of accounts payable to determine whether it agrees with the balance in the general ledger. Examples of subjective evidence include a letter written by a client’s attorney discussing the likely outcome of outstanding lawsuits against the client, observation of obsolescence of inventory during physical exami - nation, and inquiries of the credit manager about the collectibility of noncurrent accounts receivable. When the reliability of subjective evidence is being evaluated, it is essential for auditors to assess the qualifications of the person providing the evidence.
6. Timeliness. The timeliness of audit evidence can refer either to when it is accumulated or to the period covered by the audit. Evidence is usually more reliable for balance sheet accounts when it is obtained as close to the balance sheet date as possible. For example, the auditor’s count of marketable securities on the balance sheet date is more reliable than a count 2 months earlier. For income statement accounts, evidence is more reliable if there is a sample from the entire period under audit, such as a random sample of sales transactions for the entire year, rather than from only a part of the period, such as a sample limited to only the first 6 months.
The quantity of evidence obtained determines its sufficiency. Sufficiency of evidence is measured primarily by the sample size the auditor selects. For a given audit procedure, the evidence obtained from a sample of 100 is ordinarily more sufficient than from a sample of 50. Several factors determine the appropriate sample size in audits. The two most important ones are the auditor’s expectation of misstatements and the effectiveness of the client’s internal controls. To illustrate, assume in the audit of Jones Computer Parts Co. that the auditor concludes that there is a high likelihood of obsolete inventory because of the nature of the client’s industry. The auditor will sample more inventory items for obsolescence in this audit than one where the likelihood of obsolescence is low. Similarly, if the auditor concludes that a client has effective rather than ineffective internal controls over recording fixed assets, a smaller sample size in the audit of acquisitions of fixed assets may be warranted. In addition to sample size, the individual items tested affect the sufficiency of evidence. Samples containing population items with large dollar values, items with a high likelihood of misstatement, and items that are representative of the population are usually considered sufficient. In contrast, most auditors usually consider samples insufficient that contain only the largest dollar items from the population unless these items make up a large portion of the total population amount. The persuasiveness of evidence can be evaluated only after considering the combination of appropriateness and sufficiency, including the effects of the factors influencing appropriateness and sufficiency. A large sample of evidence provided by an independent party is not persuasive unless it is relevant to the audit objective being tested. A large sample of evidence that is relevant but not objective is also not persuasive. Similarly, a small sample of only one or two pieces of highly appropriate evidence also typically lacks persuasiveness. When determining the persuasiveness of evidence, the auditor must evaluate the degree to which both appropriateness and sufficiency, including all factors influencing them, have been met. Direct relationships among the four evidence decisions and the two qualities that determine the persuasiveness of evidence are shown in Table 7-2. To illustrate these relationships, assume an auditor is verifying inventory that is a major item in the finan - cial statements. Auditing standards require that the auditor be reasonably persuaded that inventory is not materially misstated. The auditor must therefore obtain a sufficient.
