General Motors’ finished goods inventory is composed primarily of automobiles. Are automobiles always classified as “inventory” on the balance sheets of all companies? Explain.
> When preparing a cash flow statement, what is the “target number”?
> What is an activity-based cost (ABC) system?
> Why would a company prefer gross revenue reporting over net revenue reporting?
> Refer to Practice 8-7 and Practice 8-10. Assume that the company uses the completed contract method. Make the journal entries necessary in Year 3 to recognize revenue and costs for the completed project. In Practice 8-7 The company signed an $880,000 co
> How is inventory shrinkage computed under a perpetual inventory system?
> Under FASB ASC Subtopic 605-25, when is an element of a multiple-element arrangement considered to be a unit of accounting?
> In general, why are up-front, nonrefundable fees not recognized as revenue immediately?
> What is the significance of customer acceptance provisions?
> What is the normal pattern of cash flow (positive or negative) for operating, investing, and financing activities?
> Dean Lang Enterprises Inc. developed a new machine that reduces the time required to insert the fortunes into its fortune cookies. Because the process is considered very valuable to the fortune cookie industry, Dean Lang patented the machine. The followi
> What is the general rule for distinguishing between inventory related costs that should be included in the cost of inventory and those that should be expensed as incurred?
> Why did the SEC issue Staff Accounting Bulletin (SAB) 101?
> Identify which of the following cash flow patterns most likely belongs to (1) A start-up, high-growth company; (2) A steady-state company; and (3) A cash cow.
> What are the two general revenue recognition criteria?
> The company collected $1,000 cash in advance from a customer for services to be rendered. Subsequently, the company rendered the services. Make the journal entries necessary to record (1) The receipt of the cash and (2) The subsequent completion of the
> How can external users use a forecasted statement of cash flows?
> A forecasted statement of cash flows allows management to plan ahead. What information is contained in the statement that can be used for planning purposes?
> What does it mean when the value of a company’s cash flow adequacy ratio is less than 1.0?
> How are significant noncash investing and financing transactions reported in connection with a statement of cash flows?
> What supplemental disclosures are required by the FASB if a company elects to use the direct method in preparing its statement of cash flows? What disclosures are required if the indirect method is used?
> Use the following information to answer the questions below: Dividends declared and paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 Cash from investing activities . . . . . . . . . . . . . . . . . . . . .
> How is a loss on the sale of a long-term asset treated when using the direct method? The indirect method?
> When using the direct method, what items must be considered in the calculation of cash paid for inventory purchases?
> Why does the FASB treat interest payments as an operating activity rather than as a financing activity?
> How is depreciation expense handled when the direct method is used? The indirect method?
> Why do many users prefer the direct method? Why do the majority of preparers prefer the indirect method?
> Either the direct method or the indirect method may be used to report cash flows from operating activities. What is the difference in approach for the two methods?
> What are the three categories in a statement of cash flows? What types of items are included in each?
> What criteria must be met for an item to be considered a cash equivalent in preparing a statement of cash flows?
> Under what circumstances does cash flow from operations offer a clearer picture of a company’s performance than does net income?
> Under what conditions are goods in transit legally reported as inventory by the (a) Seller? (b) Buyer?
> The following expenditures were incurred by Peterson Enterprises Co. in 2013: Purchase of land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 282,000 Land survey . . . . . . . . . .
> What acquisition costs are included in (a) Copyrights, (b) Franchises, and (c) Trademarks?
> Would you expect to find a perpetual or a periodic inventory system used in each of the following situations? (a) Diamond ring department of a jewelry store (b) Computer department of a college bookstore (c) Candy department of a college bookstore (d) Au
> A campus bookstore has a computerized inventory system. Is it more likely that the system is a periodic system or a perpetual system? Explain.
> (a) What are the three cost elements entering into work in process and finished goods? (b) What items enter into manufacturing overhead?
> What factors should a company consider in identifying the appropriate number of dollar value LIFO pools?
> (a) How are markdowns treated when estimating average cost using the retail inventory method? (b) How are markdowns treated when estimating lower of cost or market using the retail inventory method?
> How can FIFO and LIFO assumptions be incorporated into the retail inventory method?
> What advantages does the retail inventory method have over the gross profit method?
> Company A has an inventory turnover ratio of 8.0 times. Company B has an inventory turnover ratio of 10.0 times. Both companies are in the same industry. Which company manages its inventory more efficiently? Explain.
> What is the difference between direct materials and indirect materials?
> State the effect of each of the following errors made by Clawson Inc. on the income statement and the balance sheet (1) Of the current period and (2) Of the succeeding period: (a) The ending inventory is overstated as a result of a miscount of goods o
> Using the following information, compute the following ratios: (1) Cash-flow-to-net-income, (2) Cash flow adequacy, and (3) Cash times interest earned. Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> What information is needed to develop a reliable gross profit percentage for use with the gross profit method?
> Why would a manager care about the value assigned to inventory transferred in from another department?
> Why are ceiling and floor limitations on replacement cost considered necessary?
> The use of lower of cost or market is an unnecessary continuation of the tradition of conservative accounting. Comment on this view.
> Assume there is no change in the physical quantity of inventory for the current accounting period. During a period of rising prices, which inventory valuation method (LIFO or FIFO) will result in the greater dollar value of ending inventory? The lower pa
> (a) What is the LIFO conformity rule? (b) How has the rule changed since it was first adopted?
> (a) Under what conditions is a LIFO layer created? (b) What is meant by “LIFO reserve”?
> Which better matches the normal physical flow of goods—FIFO or LIFO? Which better matches current costs and current revenues?
> What advantages are there to using the average cost method of inventory valuation?
> Refer to Practice 10-18. Company A’s competitor, Company B, had sales for the year totaling $360,000. The net property, plant, and equipment balance at the beginning of the year was $200,000; the ending balance was $220,000. Company B is a very young com
> What objections can be raised to the use of the specific identification method?
> (a) What are the two methods of accounting for cash discounts? (b) Which method is generally preferred? Why?
> What is the appropriate way to account for inventory sold under a repurchase agreement?
> How should (a) Consigned goods and (b) Installment sales be treated in computing year-end inventory costs?
> Are all transactions with foreign companies classified as foreign currency transactions? If not, what determines if a transaction is a foreign currency transaction?
> What journal entry is made when a purchase commitment is originally entered into? Explain.
> When applying the dollar-value LIFO retail method: (a) How do beginning inventory values impact the computation of the cost percentage? (b) How are markdowns treated?
> What four questions are associated with the accounting for inventory?
> Indexes are used for two different purposes in computing the cost of LIFO layers with dollar-value LIFO. Clearly distinguish between these uses and describe how the indexes are applied.
> What are the major advantages of dollar-value LIFO?
> Using the following information, compute cash paid for dividends. Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000
> What is a bill-and-hold arrangement? Under what circumstances may a seller recognize revenue before shipment on a bill-and-hold arrangement?
> What types of side agreements can turn a sale into a consignment?
> Why does Question 1 in SAB 101 emphasize the proper signing of a sales agreement?
> What four revenue recognition factors are identified in AICPA Statement of Position (SOP) 97-2, and how do these four factors relate to the two general revenue recognition criteria?
> What is the relationship between the construction in progress account and the progress billings on construction contracts account? How should these accounts be reported on the balance sheet?
> Distinguish between the cost-to-cost method and efforts-expended method of measuring the percentage of completion.
> Under what conditions is percentage-of completion accounting recommended for construction contractors?
> Under what conditions would the cash method of recognizing revenue be acceptable for reporting purposes?
> What are the three basic steps in applying the contract method for revenue recognition?
> The normal accounting entries for installment sales require keeping a separate record by year of receivables, collections on receivables, and the deferred gross profit percentages. Why are these separate records necessary?
> On the balance sheets of many companies, the largest classification of assets in amount is noncurrent operating assets. Name the items, other than the amount paid to the former owner or contractor, that may be properly included as part of the acquisition
> Under what general conditions is the installment sales method of accounting preferred to the full accrual method?
> Distinguish among the three different approaches to revenue recognition that await the receipt of cash. How does the treatment of costs incurred vary depending on the approach used?
> The proportional performance method spreads the profit over the periods in which services are being performed. What arguments could be made against this method of revenue recognition for newly formed service-oriented companies?
> What input and output measures usually are applicable to the proportional performance method for long-term service contracts?
> How are anticipated contract losses treated under the completed-contract and percentage of-completion methods?
> The gross profit percentage reported on long term construction contracts often varies from year to year. What is the major reason for this variation?
> What is meant by imputing a rate of interest? How is such a rate determined?
> When a measure of percentage of completion other than cost-to-cost is used, the amount of cost charged against revenue using the percentage of completion usually will be different from the costs incurred. What accounting alternative exists to make it so
> (a) When should a note receivable be recorded at an amount different from its face amount? (b) Describe the procedures employed in accounting for the difference between a note’s face amount and its recorded value.
> Under FASB ASC Subtopic 605-25, what are the three different methods for determining the separate selling price of a single element in a multiple-element transaction?
> Refer to Practice 5-17. Compute the amount of cash received from the sale of the property, plant, and equipment. In Practice 5-17 Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,700 D
> Under U.S. GAAP, what three conditions must be met to record the transfer of receivables with recourse as a sale?
> (a) Distinguish between the practices of (1) Selling receivables and (2) Using receivables as collateral for borrowing. (b) Describe the accounting procedures to be followed in each case.
> How are attitudes regarding the financing of accounts receivable changing? Why do you think this is so?
> (a) Give at least four common sources of differences between depositor and bank balances. (b) Which of the differences in (a) require an adjusting entry on the books of the depositor?
> Mills Manufacturing is required to maintain a compensating balance of $15,000 with its bank to maintain a line of open credit. The compensating balance is legally restricted as to its use. How should the compensating balance be reported on the balance sh
> Melvin Company shows in its accounts a cash balance of $66,500 with Bank A and an overdraft of $1,500 with Bank B on December 31. Bank B regards the overdraft as, in effect, a loan to Melvin Company and charges interest on the overdraft balance. How woul
> The following items were included as cash on the balance sheet for Lawson Co. How should each of the items have been reported? (a) Demand deposits with bank (b) Restricted cash deposits in foreign banks (c) Bank account used for payment of salaries and w
> Why is cash on hand necessary yet potentially unproductive?
> (a) How is accounts receivable turnover computed? (b) How is average collection period computed? (c) What do these two measurements show?
> Why should a company normally account for product warranties on an accrual basis?
> Distinguish between the full cost and successful efforts methods of recording exploratory costs for oil and gas properties.
> An analysis of the accounts receivable balance of $8,702 on the records of Jorgenson, Inc., on December 31 reveals the following: Accounts from sales of last three months (appear to be fully collectible). . . . . . . . . . . . . $7,460 Accounts from sal
> In accounting for uncollectible accounts receivable, why does GAAP require the allowance method rather than the direct write-off method?
