The gross profit percentage reported on long term construction contracts often varies from year to year. What is the major reason for this variation?
> 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
> 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?
> 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?
> (a) Describe the methods for establishing and maintaining an allowance for bad debts account. (b) How would the percentages used in estimating uncollectible accounts be determined under each of the methods?
> Explain how each of the following factors affects the classification of a receivable: (a) The form of a receivable, (b) The source of a receivable, and (c) The expected time to maturity or collection.
> The Gidewall Corporation uses part 210 in a manufacturing process. Information as to balances on hand, purchases, and requisitions of part 210 is given in the following table: Instructions: What is the closing inventory under each of the following pri
> Streuling Inc. is preparing its 2013 year-end financial statements. Prior to any adjustments, inventory is valued at $76,050. The following information has been found relating to certain inventory transactions: (a) Goods valued at $11,000 are on consignm
> The following information is available for Granite Inc. Instructions: Compute the missing amounts.
> Kyoto Manufacturing produces automobile mufflers, which are then sent to the United States where they are installed in domestically built cars. Truck Inc., a U.S. auto company, received a shipment of mufflers on December 15, 2012. The mufflers were subse
> Wittenbecher’s, a German company that supplies your firm with a necessary raw material, recently shipped 15,000 units of the material to your production facility. 1. Prepare the necessary journal entries to record the purchase of the goods and the subseq
> On October 1, 2013, Sloan Oil Inc. entered into a 6-month, $650,000 purchase commitment for a supply of oil. On December 31, 2013, the market value of oil had fallen to $563,000. Make the journal entries necessary on December 31, 2013, and on March 31, 2
> Using the following information, compute cash paid to purchase property, plant, and equipment. Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,700 During the year, property, plant, an
> On February 15, 2014, Rooker, Madras & Associates compiled the following information concerning inventory for five years. They used the dollar-value LIFO retail inventory method. Compute the inventory cost at the end of each year under the dollar-v
> Jennifer Inc. adopted dollar-value LIFO on December 31, 2010. Data for 2010–2013 follow: Inventory and index on the adoption date, December 31, 2010: Dollar-value LIFO inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> The company reported the following inventory data for the year: Compute (1) Cost of goods sold and (2) Ending inventory assuming (a) FIFO inventory valuation, (b) LIFO inventory valuation, and (c) Average cost inventory valuation. The company use
> The Wernli Manufacturing Company manufactures a single product. The managers, Brandon and Chris Wernli, decided on December 31, 2010, to adopt the dollar-value LIFO inventory method. The inventory value on that date using the newly adopted dollar-value L
> Miller Mfg. has one LIFO pool. Information relating to the products in this pool is as follows: Beginning inventory, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 units @ $10 each Purchase, February 12 . . . .
> Carmel Department Store uses the retail inventory method. On December 31, 2013, the following information relating to the inventory was gathered: Compute the ending inventory value at December 31, 2013, using the: 1. Average cost method 2. Lower-of-cos
> The Help-U-Succeed Bookstore recently received a shipment of accounting textbooks from the publisher. Following the receipt of the shipment, the FASB issued a major new accounting standard that related directly to the contents of one chapter of the text.
> The Evening Out Clothing Store values its inventory using the retail inventory method. The following data are available for the month of November 2013: Compute the estimated inventory at November 30, 2013, assuming: 1. FIFO 2. LIFO 3. Average cost
> The Rigby Supplement Company showed the following data in its financial statements. 1. Compute the number of days’ sales in average inventory for both 2012 and 2013. What can you infer from these numbers? 2. How would you interpret th
> The Manwaring Products Company’s inventory record appears below. The company uses a LIFO cost flow assumption. It reported ending inventories as follows for its first three years of operations: 2011 . . . . . . . . . . . . . . . . .
> The company paid $500,000 to purchase the following: a building with an appraised value of $200,000, an operating permit valued at $100,000, and ongoing research and development projects valued at $150,000. In addition, it is estimated that the fair valu
> The Martin Company reported income before taxes of $370,000 for 2012 and $526,000 for 2013. A later audit produced the following information: (a) The ending inventory for 2012 included 2,000 units erroneously priced at $5.90 per unit. The correct cost wa
> Annual income for the Stoker Co. for the period 2009–2013 appears below. However, a review of the records for the company reveals inventory misstatements as listed. Calculate corrected net income for each year.
> On June 30, 2013, a flash flood damaged the warehouse and factory of Magna Corporation, completely destroying the work-in-process inventory. There was no damage to either the raw materials or finished goods inventories. A physical inventory taken after t
> On May 23, the company purchased $500,000 in inventory on account. The purchase terms are 2/10, n/30. Make the journal entries to record the purchase of and subsequent payment for these goods assuming: (1) The company uses the net method and paid for th
> On August 15, 2013, a hurricane damaged a warehouse of Rheinhart Merchandise Company. The entire inventory and many accounting records stored in the warehouse were completely destroyed. Although the inventory was not insured, a portion could be sold for
> Napali Inc. sells new equipment with a $5,300 list price. A dissatisfied customer returned one piece of equipment. Napali determines that the returned equipment can be resold if it is reconditioned. The expected sales price of the reconditioned equipment
> The Crevier Corporation began business on January 1, 2013. The following table shows information about inventories, as of December 31, for three consecutive years under different valuation methods. Assume that purchases are $60,000 each year. Using this
> Newcomer, Inc., values inventories using the lower-of-cost-or-market method applied to total inventory. Inventory values at the end of the company’s first and second years of operation follow. 1. Prepare the journal entries necessary
> The following inventory data are available for Nordic Ski Shop at December 31. 1. Determine the value of ending inventory using the lower-of-cost-or-market method applied to (a) Individual items and (b) Total inventory. 2. Prepare any journal entries re
> Determine the proper carrying value of the following inventory items.
> Using the following information, compute cash paid for operating expenses. Operating expenses: Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000 Insurance . . . . . . . . . . .
> Assume the Bullock Corporation had the following purchases and sales of its single product during its first three years of operation. Cost of goods sold is Bullock’s only expense. The income tax rate is 40%. 1. Determine the net incom
> First-in, first-out has been used for inventory valuation by the Bartlett Co. since it was organized in 2010. Using the data that follow, redetermine the net incomes for each year on the assumption of inventory valuation on the last-in, first-out basis:
