Question: The company collected $1,000 cash in

> A summary of revenues and expenses for Norwalk Company for 2013 follows: Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,200,000 Cost of goods manufactured

> Nephi Corporation reported the following income items before tax for the year 2013: Income from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . $260,000 Loss from operations of a discontinued business componen

> The following information was taken from the books of Tapwater Company. Compute the amount of net cash provided by (used in) operating activities during 2013 using the indirect method.

> The selling expenses of Caribou Inc. for 2013 are 13% of sales. General expenses, excluding doubtful accounts, are 25% of cost of goods sold but only 15% of sales. Doubtful accounts are 2% of sales. The beginning inventory was $136,000, and it decreased

> From the following information for Carter Corporation, prepare a statement of cash flows for the year ended December 31, 2013, using the indirect method. Amortization of patent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

> Where in a multiple-step income statement would each of the following items be reported? (a) Purchase discounts (b) Gain on early retirement of debt (c) Interest revenue (d) Loss on sale of equipment (e) Casualty loss from hurricane (f) Sales commissions

> Norrington Trading Co. provides the following income statement for 2013: Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $675,400 Cost of goods sold . . . . . . . . . . . .

> Borgquist Corporation purchased a patent on January 2, 2010, for $600,000. Its original life was estimated to be 10 years. However, in December of 2013, Borgquist’s controller received information proving conclusively that the product protected by the Bo

> Anakin, Inc., provides the following account balances for 2013 and 2012: Using the format presented in the chapter, prepare the Operating Activities section of the statement of cash flows and present that information using (a) The direct method and (b)

> For each of the following items, indicate whether the expense should be recognized using (1) Direct matching, (2) Systematic and rational allocation, or (3) Immediate recognition. Provide support for your answer. (a) Johnson & Smith, Inc., conducts cance

> On January 1, the company received layaway payments from two customers. Each customer paid $50. On December 24, the layaway period expired. On that date, the company received $300 from Customer 1 and delivered the promised merchandise (costing $200). Cus

> The accountant for Alpine Hobby Stores prepared the following selected information for the year ended December 31, 2013: Equipment with a book value of $18,000 was sold for $16,000 cash. The original cost of the equipment was $21,000. Determine the ca

> Indicate which of the following transactions or events gives rise to the recognition of revenue in 2013 under the accrual basis of accounting. If revenue is not recognized, what account, if any, is credited? (a) On December 15, 2013, Howe Company receive

> State how each of the following items would be reflected on a statement of cash flows. (a) Securities classified as available for sale were purchased for $4,200. (b) Buildings were acquired for $210,000, the company paying $60,000 cash and signing an 11%

> For each of the following transactions, events, or circumstances, indicate whether the recognition criteria for revenues and gains are met and provide support for your answer. (a) An order of $25,000 for merchandise is received from a customer. (b) The v

> Indicate whether each of the following items would be classified as (1) An operating activity, an investing activity, or a financing activity or (2) As a noncash transaction or noncash item. (a) Cash collected from customers. (b) Cash paid to suppliers f

> Why is an adjustment made on the balance sheet date to reflect exchange rate changes?

> Identify three different indexes that can be used in valuing a new LIFO layer with dollar-value LIFO. Which index is most consistent with the LIFO assumption?

> What is wrong with the statement, “Cash flow is equal to net income plus depreciation”?

> The income statement provides detail as to transactions that occurred during the period relating to what balance sheet account? The statement of cash flows provides detail as to the transactions that occurred during the period relating to what balance sh

> How do the provisions of IAS 2 differ from the lower-of-cost-or-market rule contained in U.S. GAAP?

> Installment sales contracts generally include interest. Contrast the method of recognizing interest revenue from the method used to recognize the gross profit on the sale.

> Changes in the balance sheet account balances for the Bubble Bobble Co. during 2013 follow. Dividends declared during 2013 were $18,000. Calculate the net income for the year assuming that no transactions other than the dividends affected retained earnin

> What differences result from applying lower of cost or market to individual inventory items instead of to the inventory as a whole?

> On average, which number is larger, net income or cash from operations? Explain.

> How is interest paid classified in a statement of cash flows under the provisions of FASB ASC Topic 230?

> What is the current status of LIFO under IASB standards?

> What kinds of companies would be least likely to use LIFO? Explain.

> Is the purchase of securities an operating activity or an investing activity? Explain.

> Why are LIFO and average cost more complicated with a perpetual inventory system than with a periodic system?

> The construction in progress account is used to accumulate all costs of construction. What additional item is included in this account when percentage-of-completion accounting is followed?

> Explain what special accounting procedures are required when receivables are assigned as collateral for a secured loan.

> Output measures of percentage of completion are sometimes preferred to input measures. What are some examples of commonly used output measures?

> The following balance sheet and income statement information includes actual data for 2013 and forecasted data for 2014: Prepare a forecasted statement of cash flows for 2014. Use the indirect method of reporting cash flow from operating activities.

> Describe the 2-step test required under the provisions of IAS 39 to determine whether a receivable should be derecognized.

> 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?

> 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

> General Motors’ finished goods inventory is composed primarily of automobiles. Are automobiles always classified as “inventory” on the balance sheets of all companies? Explain.

> (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