Briefly explain the accounting treatment for sales returns.
> How is the cost of units normally lost in manufacturing absorbed by the unit cost for the period?
> Strand Manufacturing, Inc., has the following flexible budget formulas and amounts: Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25 per unit Direct materials . . . . . . . . . . . . . . . .
> Using the following per-unit and total amounts, prepare a flexible budget at the 14,000-, 15,000-, and 16,000-unit levels of production and sales for Celestial Products, Inc.: Selling price per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> Why might the total number of units completed during a month plus the number of units in process at the end of a month be less than the total number of units in process at the beginning of the month plus the number of units placed in process during the m
> Gyro Company has the following totals from its operating budgets: Selling and administrative expenses budget . . . . . . . . . . . . . . . . . . . $ 244,500 Cost of goods sold budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> Prepare a cost of goods sold budget for the Summit Manufacturing Company for the year ended December 31, 2011, from the following estimates. Inventories of production units: Direct materials purchased during the year, $854,000; beginning inventory of dir
> What advantage does the FIFO cost method have over the average cost method relative to providing information for cost control?
> Give three examples each of operating budgets and financial budgets.
> What is a continuous budget, and why is it useful?
> What are six principles of good budgeting?
> How is the standard cost per unit for factory overhead determined?
> Is it possible for a factory to operate at more than 100% of normal capacity?
> How would you define the following? a. Theoretical capacity b. Practical capacity c. Normal capacity
> In comparing actual sales revenue to flexible budget sales revenue, would it be possible to have a favorable variance and still not have met revenue expectations?
> Why is a flexible budget better than a master budget for comparing actual results to budgeted expectations?
> S. Prosser Manufacturing Company forecast October sales to be 45,000 units. Additional information follows: Finished goods inventory, October 1 . . . . . . . . . . . . . . . . . . . . . . . . 5,000 units Finished goods inventory desired, October 31 . .
> What are the advantages and disadvantages of each of the following for a company that has greatly fluctuating sales during the year? a. A stable production policy b. A stable inventory policy
> What is the difference between the average cost method and the first-in, first-out (FIFO) cost method?
> Why is it important to have front-line managers participate in the budgeting process?
> Which budget must be prepared before the others? Why?
> Budgeted selling and administrative expenses for Cruise Tire Company in P7-2 for the year ended December 31, 2011, were as follows: Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $942,000 Office rent
> Cruise Tire Company’s budgeted unit sales for the year 2011 were: Passenger car tires . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 Truck tires . . . . . . . . . . . . . . . . .
> The sales department of Optimo Company has forecast sales for May 2011 to be 40,000 units. Additional information follows: Finished goods inventory, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 units Finished goods inventory, M
> Mountaineer Manufacturing Company uses a job order cost system and standard costs. It manufactures one product, whose standard cost follows: Materials, 20 yards@$0.90 per yard . . . . . . . . . . . . . . . . . . . . . . . . . . $18 Direct labor, 4 hours
> Presented below are the monthly factory overhead cost budget (at normal capacity of 5,000 units or 20,000 direct labor hours) and the production and cost data for a month. The predetermined overhead rate is based on normal capacity. Required: 1. Assuming
> Use the information in Figure 7-12 of the chapter. Required: Prepare flexible budgets for the production and sale of 29,000 units and 31,000, respectively. Figure 7-12 Flexible Budget for Production and Sale of Tables A 28,000 units $4.200,000 30,00
> Branson Manufacturing, Inc., produces a single type of small motor. The bookkeeper who does not have an in-depth understanding of accounting principles prepared the following performance report with the help of the production manager. In a conversation w
> The sales department of P. Gillen Manufacturing Company has forecast sales in March to be 20,000 units. Additional information follows: Finished goods inventory, March 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 units Finished goods i
> What computations must be made if materials added in a department increase the number of units being processed in that department?
> How would you describe the method used to treat the cost of abnormal processing losses?
> The sales department of S. Miller Manufacturing Company has forecast sales for its single product to be 20,000 units for the month of June, with three-quarters of the sales expected in the East region and one-fourth in the West region. The budgeted selli
> A company’s year-end balance in accounts receivable is $2,000,000. The allowance for uncollectible accounts had a beginning-of-year credit balance of $30,000. An aging of accounts receivable at the end of the year indicates a required allowance of $38,00
> Refer to the situation described in BE 6–8. What amount did Canliss borrow assuming that the first $10,000 payment was due immediately? In BE 6–8 Canliss Mining Company borrowed money from a local bank. The note the company signed requires five annual i
> Refer to the situation described in BE 7–9. Answer the two questions assuming the company estimates that future bad debts will equal 10% of the year-end balance in accounts receivable. In BE 7–9 The following information relates to a company’s accounts
> The following information relates to a company’s accounts receivable: accounts receivable balance at the beginning of the year, $300,000; allowance for uncollectible accounts at the beginning of the year, $25,000 (credit balance); credit sales during the
> Refer to the situation described in BE 7–6. Prepare the year-end adjusting journal entries to account for anticipated sales returns under the assumption that all sales are made for cash (no accounts receivable are outstanding) In BE 7–6 During 2018, its
> During 2018, its first year of operations, Hollis Industries recorded sales of $10,600,000 and experienced returns of $720,000. Cost of goods sold totaled $6,360,000 (60% of sales). The company estimates that 8% of all sales will be returned. Prepare the
> Cutler Company has a cash account with a balance of $250,000 with Wright Bank and a cash account with an overdraft of $5,000 at Lowe Bank. What would the current assets section of Cutler’s balance sheet include for “cash” under IFRS? Under U.S. GAAP?
> Assume the same facts as in BE 7–22, but that Einhorn determines credit losses using the CECL model introduced in ASU 2016-13 and required in 2020. How much credit loss should Einhorn recognize? In BE 7–22 Einhorn Industries believes it is not probable
> Shan Enterprises received a bank statement listing its May 31, 2018, bank balance as $47,582. Shan determined that as of May 31 it had cash receipts of $2,500 that were not yet deposited and checks outstanding of $7,224. Calculate Shan’s correct May 31,
> Marin Company’s general ledger indicates a cash balance of $22,340 as of September 30, 2018. Early in October Marin received a bank statement indicating that during September Marin had an NSF check of $1,500 returned to a customer and incurred service ch
> Camden Hardware’s credit sales for the year were $320,000. Accounts receivable at the beginning and end of the year were $50,000 and $70,000, respectively. Calculate the accounts receivable turnover ratio and the average collection period for the year.
> On March 31, Dower Publishing discounted a $30,000 note at a local bank. The note was dated February 28 and required the payment of the principal amount and interest at 6% on May 31. The bank’s discount rate is 8%. How much cash will Dower receive from t
> Canliss Mining Company borrowed money from a local bank. The note the company signed requires five annual installment payments of $10,000 beginning one year from today. The interest rate on the note is 7%. What amount did Canliss borrow?
> Huling Associates plans to transfer $300,000 of accounts receivable to Mitchell Inc. in exchange for cash. Huling has structured the arrangement so that it retains substantially all the risks and rewards of ownership but shifts control over the receivabl
> Logitech Corporation transferred $100,000 of accounts receivable to a local bank. The transfer was made without recourse. The local bank remits 85% of the factored amount to Logitech and retains the remaining 15%. When the bank collects the receivables,
> On April 19, 2018, Millipede Machinery sold a tractor to Thomas Hartwood, accepting a note promising payment of $120,000 in five years. The applicable effective interest rate is 7%. What amount of sales revenue would Millipede recognize on April 19, 2018
> Refer to the situation described in BE 7–11. If credit sales for the year were $8,200,000 and $7,950,000 was collected from credit customers, what was the beginning-of-year balance in accounts receivable? In BE 7–11 A company’s year-end balance in accou
> Explain the typical way companies account for uncollectible accounts receivable (bad debts). When is it permissible to record bad debt expense only at the time when receivables actually prove uncollectible?
> Distinguish between the gross and net methods of accounting for cash discounts.
> Explain the difference between a trade discount and a cash discount.
> Define a compensating balance. How are compensating balances reported in financial statements?
> What are the responsibilities of management described in Section 404 of the Sarbanes-Oxley Act? What are the responsibilities of the company’s auditor?
> Refer to the situation described in BE 6–6. How much will Leslie accumulate in three years by depositing $500 at the beginning of each of the next 12 quarters? In BE 6–6 Leslie McCormack is in the spring quarter of her freshman year of college. She and
> Marshall Companies, Inc., holds a note receivable from a former subsidiary. Due to financial difficulties, the former subsidiary has been unable to pay the previous year’s interest on the note. Marshall agreed to restructure the debt by both delaying and
> How is a petty cash fund established? How is the fund replenished?
> In a two-step bank reconciliation, identify the items that might be necessary to adjust the bank balance to the corrected cash balance. Identify the items that might be necessary to adjust the book balance to the corrected cash balance.
> Explain how the CECL model (introduced in ASU No. 2016-13 and required in 2020) differs from current GAAP in its calculation of bad debt expense.
> What is meant by the discounting of a note receivable? Describe the four-step process used to account for discounted notes.
> Do U.S. GAAP and IFRS differ in the criteria they use to determine whether a transfer of receivables is treated as a sale? Explain.
> Explain any possible differences between accounting for an account receivable factored with recourse compared with one factored without recourse.
> Briefly explain the difference between the income statement approach and the balance sheet approach to estimating bad debts.
> Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2015, are available in Connect. This m
> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available in Connect. This material is also available under the Investor Relations li
> Leslie McCormack is in the spring quarter of her freshman year of college. She and her friends already are planning a trip to Europe after graduation in a little over three years. Leslie would like to contribute to a savings account over the next three y
> Johnson & Johnson is one of the world’s largest manufacturers of health care products. The company’s December 31, 2015, financial statements included the following information in the long-term debt disclosure note: _______________________________________
> Hughes Corporation is considering replacing a machine used in the manufacturing process with a new, more efficient model. The purchase price of the new machine is $150,000 and the old machine can be sold for $100,000.Output for the two machines is identi
> On a rainy afternoon two years ago, John Smiley left work early to attend a family birthday party. Eleven minutes later, a careening truck slammed into his SUV on the freeway causing John to spend two months in a coma. Now he can’t hold a job or make eve
> Sally Hamilton has performed well as the chief financial officer of the Maxtech Computer Company and has earned a bonus. She has a choice among the following three bonus plans: 1. A $50,000 cash bonus paid now. 2. A $10,000 annual cash bonus to be paid e
> The Damon Investment Company manages a mutual fund composed mostly of speculative stocks. You recently saw an ad claiming that investments in the funds have been earning a rate of return of 21%. This rate seemed quite high so you called a friend who work
> Southwest Airlines provides scheduled air transportation services in the United States. Like many airlines, Southwest leases many of its planes from Boeing Company. In its long-term debt disclosure note included in the financial statements for the year e
> Benning Manufacturing Company is negotiating with a customer for the lease of a large machine manufactured by Benning. The machine has a cash price of $800,000. Benning wants to be reimbursed for financing the machine at a 12% annual interest rate over t
> Benning Manufacturing Company is negotiating with a customer for the lease of a large machine manufactured by Benning. The machine has a cash price of $800,000. Benning wants to be reimbursed for financing the machine at an 8% annual interest rate. Requ
> On January 1, 2018, The Barrett Company purchased merchandise from a supplier. Payment was a noninterest-bearing note requiring five annual payments of $20,000 on each December 31 beginning on December 31, 2018, and a lump-sum payment of $100,000 on Dece
> John Roberts is 55 years old and has been asked to accept early retirement from his company. The company has offered John three alternative compensation packages to induce John to retire. 1. $180,000 cash payment to be paid immediately 2. A 20-year annui
> Refer to the situation described in BE 6–4. Suppose the opportunity requires John to invest $13,200 today. What is the interest rate John would earn on this investment? In BE 6–4 John has an investment opportunity that promises to pay him $16,000 in fou
> On January 1, 2018, the Montgomery Company agreed to purchase a building by making six payments. The first three are to be $25,000 each, and will be paid on December 31, 2018, 2019, and 2020. The last three are to be $40,000 each and will be paid on Dece
> Lowlife Company defaulted on a $250,000 loan that was due on December 31, 2018. The bank has agreed to allow Lowlife to repay the $250,000 by making a series of equal annual payments beginning on December 31, 2019. Required: 1. Calculate the required an
> The following situations should be considered independently. 1. John Jamison wants to accumulate $60,000 for a down payment on a small business. He will invest $30,000 today in a bank account paying 8% interest compounded annually. Approximately how long
> John and Sally Claussen are considering the purchase of a hardware store from John Duggan. The Claussens anticipate that the store will generate cash flows of $70,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an est
> John Wiggins is considering the purchase of a small restaurant. The purchase price listed by the seller is $800,000. John has used past financial information to estimate that the net cash flows (cash inflows less cash outflows) generated by the restauran
> Harding Company is in the process of purchasing several large pieces of equipment from Danning Machine Corporation. Several financing alternatives have been offered by Danning: 1. Pay $1,000,000 in cash immediately. 2. Pay $420,000 immediately and the re
> Johnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently. 1. On June 30, 2018, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $10,000 o
> Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $48,000. I
> On the last day of its fiscal year ending December 31, 2018, the Sedgwick & Reams (S&R) Glass Company completed two financing arrangements. The funds provided by these initiatives will allow the company to expand its operations. 1. S&R issued 8% stated r
> Three employees of the Horizon Distributing Company will receive annual pension payments from the company when they retire. The employees will receive their annual payments for as long as they live. Life expectancy for each employee is 15 years beyond re
> John has an investment opportunity that promises to pay him $16,000 in four years. He could earn a 6% annual return investing his money elsewhere. What is the maximum amount he would be willing to invest in this opportunity?
> Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corp. The machine can be used for 10 years and then sold for $10,000 at the end of its useful life. Lollie h
> Wiseman Video plans to make four annual deposits of $2,000 each to a special building fund. The fund’s assets will be invested in mortgage instruments expected to pay interest at 12% on the fund’s balance. Using the appropriate annuity table, determine h
> For each of the following situations involving single amounts, solve for the unknown (?). Assume that interest is compounded annually. (i = interest rate, and n = number of years) Present Value Future Value i n 1. $ 40,000 10% 5 2. $36,289 65,000 ?
> The Field Detergent Company sold merchandise to the Abel Company on June 30, 2018. Payment was made in the form of a noninterest-bearing note requiring Abel to pay $85,000 on June 30, 2020. Assume that a 10% interest rate properly reflects the time value
> Determine the combined present value as of December 31, 2018, of the following four payments to be received at the end of each of the designated years, assuming an annual interest rate of 8%. Payment _______Year Received $5,000 ……………………………. 2019 6,000 ……
> Determine the present value of the following single amounts: Future Amount Interest Rate No. of Periods 1. $20,000 7% 10 2. 14,000 8 12 3. 25,000 12 20 4. 40,000 10 8
> Determine the future value of $10,000 under each of the following sets of assumptions: Annual Rate Period Invested Interest Compounded 1. 10% 10 years Semiannually 5 years 2. 12 Quarterly 3. 24 30 months Monthly
> Determine the future value of the following single amounts: Invested Amount Interest Rate No. of Periods 1. $15,000 6% 12 2. 20,000 8 10 3. 30,000 12 20 4. 50,000 4 12
> On September 30, 2018, the San Fillipo Corporation issued 8% stated rate bonds with a face amount of $300 million. The bonds mature on September 30, 2038 (20 years). The market rate of interest for similar bonds was 10%. Interest is paid semiannually on
> On April 1, 2018, John Vaughn purchased appliances from the Acme Appliance Company for $1,200. In order to increase sales, Acme allows customers to pay in installments and will defer any payments for six months. John will make 18 equal monthly payments,
> Refer to the situation described in BE 6–2. Assume that the trip will cost $26,600. What interest rate, compounded annually, must Bill earn to accumulate enough to pay for the trip? In BE 6–2 Bill O’Brien would like to take his wife, Mary, on a trip thr
> Sandy Kupchack just graduated from State University with a bachelor’s degree in history. During her four years at the university, Sandy accumulated $12,000 in student loans. She asks for your help in determining the amount of the quarterly loan payment.
> Lang Warehouses borrowed $100,000 from a bank and signed a note requiring 20 annual payments of $13,388 beginning one year from the date of the agreement. Required: Determine the interest rate implicit in this agreement.
