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Question: Why do companies that use perpetual inventory


Why do companies that use perpetual inventory systems also take an annual physical inventory? When is this physical inventory usually taken? Why?


> You have just been hired as the controller of Land’s End Hotel. The hotel prepares monthly responsibility income statements in which all fixed costs are allocated among the various profit centers in the hotel, based on the relative amounts of revenue gen

> Midtown Distribution sells a variety of merchandise to retail stores on account, but it insists that any customer who fails to pay an invoice when due must replace their account receivable with an interest-bearing note at the current interest rate. The c

> Why is the contribution margin an important concept for incremental decision making?

> Superior Instruments produces two models of instruments. Information for each model is as follows. The demand for either product is sufficient to keep the plant operating at full capacity (15,000machine-hours per month). Assume that only one product is

> A recent annual report of the Kraft Heinz Company reveals the following information (dollar amounts are stated in millions). a. Compute Kraft Heinz’s inventory turnover for the year (round to nearest tenth). b. Compute the number of da

> Ulsan Company has manufacturing subsidiaries in Malaysia and Malta. It is considering shipping the subcomponents of Product Y to one or the other of these countries for final assembly. The final product will be sold in the country where it is assembled.

> The SEC was once reluctant to hit companies with big fines for wrongdoing because the penalties hurt shareholders whose stock prices had already been hammered by scandal. But the Sarbanes–Oxley Act now lets the SEC use the fine funds to repay stockholder

> Dow Corporation produces a wide variety of products ranging from raw chemicals that are used as inputs by other firms to final goods that are sold to consumers. Access Dow’s home page at the following address: www.dow.com. Instructions: a. Select “Marke

> Friendly Software recently developed new spreadsheet software, Easy-Calc, which it intends to market by mail through ads in computer magazines. Just prior to introducing Easy-Calc, Friendly receives an unexpected offer from Jupiter Computer to buy all ri

> We have made the point that managers often attempt to maximize the contribution margin per unit of a particular resource that limits output capacity. The following are five familiar types of businesses. 1. Small medical or dental practice. 2. Restaurant.

> Identify two characteristics of estimated liabilities. Provide at least two examples of estimated liabilities.

> Wrigley Company (a subsidiary of Mars Incorporated) manufactures chewing gum. Visit the following address for the company: http://www.wrigley.com/ea/about-us/how-gum-made.aspx. From this link, you will be provided an overview of how gum is made. Instruc

> Norton Chemical Company produces two products: Amatol and Bitrate. The company uses activity-based costing (ABC) to allocate manufacturing overhead to these products. The costs incurred by Norton’s Purchasing Department average $80,000

> Listed as follows are eight technical accounting terms introduced in this chapter Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the term described, or answer “None

> Identify one local business that uses a perpetual inventory system and another that uses a periodic system. Interview an individual in each organization who is familiar with the inventory system and the recording of sales transactions. Instructions Separ

> Indicate the effects of the following errors on each of the items listed in the column headings. Use the following symbols: O = overstated, U = understated, and NE = no effect. Assume that the company does not use the direct write-off method to account f

> In each of the following situations, indicate whether you would expect the business to use a periodic inventory system or a perpetual inventory system. Explain the reasons for your answer. a. The Frontier Shop is a small retail store that sells boots an

> Visit the home page of the Ford Motor Company at www.ford.com. From Ford’s home page, access the company’s most recent annual report (select the “Investors” menu item near the bottom of the page). Locate the notes to the financial statements and identify

> The flow of manufacturing costs through the ledger accounts of Superior Locks, Inc., in the current year is illustrated as follows in summarized form. Instructions: Indicate the following amounts requested. Some amounts are shown in the illustrated T ac

> For the year ended December 31, Southern Supply had net sales of $3,875,000, costs and other expenses (including income tax) of $3,100,000, and a gain from discontinued operations (net of income tax) of $210,000. a. To the extent possible from the limite

> Listed are five items that may or may not require disclosure in the notes that accompany financial statements. a. Mandella Construction Co. uses the percentage-of-completion method to recognize revenue on long-term construction contracts. This is one of

> Perform an Internet search of “The Hershey Company Investor Relations.” After gaining to access to Hershey’s Investor Relations homepage, access the link to the company’s most recent annual report. Examine the Hershey’s balance sheet and identify the acc

> The following information was taken from annual reports of Goodyear Tire & Rubber and PPL Corp., a public utility: a. Compute for each company the accounts receivable turnover rate for the year. b. Compute for each company the average number of day

> The Sarbanes–Oxley Act requires that the CEO (chief executive officer) and CFO (chief financial officer) of publicly traded corporations include statements of personal certification in the disclosures accompanying the financial reports filed with the SEC

> The accounting records of NuTronics, Inc., include the following information for the year ended December 31. Overhead assigned to production was $192,000. a. Prepare a schedule of the cost of finished goods manufactured. (Not all of the data given are u

> Parsons Plumbing & Heating manufactures thermostats that it uses in several of its products. Management is considering whether to continue manufacturing the thermostats or to buy them from an outside source. The following information is available. 1.

> Johnson & Johnson’s 2017 financial statements include the following items (all dollars in millions). Compute the following ratios and comment on the trend you can observe from the limited two years of data you have available. a. Gr

> Hearthstone sells commercial kitchen equipment. At December 31, year 1, Hearthstone’s inventory amounted to $900,000. During the first week of January, year 2, the company made only one purchase and one sale. These transactions were as

> Dr. Cravat, DMD, opened a dental clinic on August 1, current year. The following are the business transactions for August. A partial list of account titles used by Dr. Cravati includes the following. Instructions : a. Analyze the effects that each of t

> Satellite World was founded in 2020 to apply a new technology for efficiently transmitting closed-circuit (cable) television signals without the need for an in-ground cable. The company earned a profit of $115,000 in 2020, its first year of operations, e

> In March, current year, Mary Tone organized a corporation to provide package delivery services. The company, called Tone Deliveries, Inc., began operations immediately. Transactions during the month of March were as follows. The account titles used by T

> Jensen Fences uses job order costing. Manufacturing overhead is charged to individual jobs through the use of a predetermined overhead rate based on direct labor costs. The following information appears in the company’s Work in Process

> Dana, Inc., provides civil engineering services. During October, its transactions included the following. Instructions: a. Analyze the effects that each of these transactions will have on the following six components of the company’s

> Lyons, Inc., provides consulting services. A few of the company’s business transactions occurring during June are described as follows. 1. On June 1, the company billed customers $6,000 on account for consulting services rendered. Customers are required

> Chris North is the founder and president of North Enterprises, a real estate development venture. Instructions: a. Prepare journal entries to record these transactions. Select the appropriate account titles from the following chart of accounts. b. Ind

> Boom, Inc., sells business software. Currently, all of its programs come on disks. Due to their complexity, some of these applications occupy as many as seven disks. Not only are the disks cumbersome for customers to load, but they are relatively expensi

> Jackson Mountain is a small ski resort located in northern Connecticut. In recent years, the resort has experienced two major problems: (1) unusually low annual snowfalls and (2) long lift lines. To remedy these problems, management is considering two in

> Explain why errors in the valuation of inventory at the end of the year are sometimes called “counterbalancing” or “self-correcting.”

> Guthrie Generators manufactures a solenoid that it uses in several of its products. Management is considering whether to continue manufacturing the solenoids or to buy them from an outside source. The following information is available. 1. The company ne

> Computer Resources Inc. is a computer retailer. Computer Resources began operations in December of the current year and engaged in the following transactions during that month. Computer Resources uses a perpetual inventory system. Instructions: a. Compu

> The former bookkeeper of White Electric Supply is serving time in prison for embezzling nearly $416,000 in less than five years. She describes herself as “an ordinary mother of three kids and a proud grandmother of four.” Like so many other “ordinary” em

> The flow of manufacturing costs through the ledger accounts of ISP, Inc., in the current year is illustrated as follows in summarized form. Instructions: Indicate the following amounts requested. Some amounts are shown in the T accounts provided; others

> Easy Living Corporation manufactures houseboats. During its first year of operations, the company started and completed 40 boats at a cost of $96,000 per unit. Of these, 30 were sold for $156,000 each and 10 remain in finished goods inventory. In additio

> Kent Corporation manufactures filtration systems. The manufacturing costs incurred during its first year of operations are as follows. During the year, 220 completed units were manufactured, of which 180 were sold. (Assume that ending Finished Goods Inv

> Company P, a U.S. company, has a foreign subsidiary in Country Q, where various forms of bribery are accepted and expected. Company P sent one of its top U.S. managers to oversee operations in its subsidiary in Country Q. That manager engaged in the foll

> Fox Games is a U.S. company that manufacturers computer game consoles. Many of the components for the consoles are purchased abroad, and the finished product is sold in foreign countries as well as in the United States. Among the recent transactions of F

> The following financial assets appeared in a recent balance sheet of Apple Inc. (dollar amounts are stated in millions). a. Define financial assets. b. A different approach is used in determining the balance sheet value for each category of Apple Inc.&a

> Sky Tracker Corporation manufactures a telecommunications device. During its first year of operations, the company started and completed 45 devices at a cost of $66,000 per unit. Of these, 43 were sold for $126,000 each and two remain in finished goods i

> Form a group of students and research the Dominican Republic–Central America–United States (CAFTA-DR) trade agreement for Central America. A government website, www.ustr.gov, provides information on various trade agreements. Prepare a short presentation

> The accounting records of Hobart Industries show the following information for the most recent year ended December 31. a. Find the amount debited to the Work In Process Inventory account during the year. b. What is the cost of goods manufactured for the

> Rainbow Paints operates a chain of retail paint stores. Although the paint is sold under the Rainbow label, it is purchased from an independent paint manufacturer. Guy Walker, president of Rainbow Paints, is studying the advisability of opening another s

> Big Oak Lumber is a lumber yard on Angel Island. Some of Big Oak’s transactions during the current year are as follows. Instructions: a. Prepare journal entries to record these transactions and events in the accounting records of Big

> You are the controller for 21st Century Technologies. Your staff has prepared an income statement for the current year and has developed the following additional information by analyzing changes in the company’s balance sheet accounts.

> On August 3, Cinch Construction purchased special-purpose equipment at a cost of $1,000,000. The useful life of the equipment was estimated to be eight years, with an estimated residual value of $50,000. a. Compute the depreciation expense to be recogniz

> Identify the following expenditures as capital expenditures or revenue expenditures. a. Immediately after acquiring a new delivery truck, paid $260 to have the name of the store and other advertising material painted on the vehicle. b. Painted delivery t

> Assume that you recently applied for a student loan to go to graduate school. As part of the application process, your bank requested a list of your assets. Aside from an extensive CD collection, your only other asset is a pickup truck. You purchased the

> The Home Depot financial statements and related material appear in Appendix A at the end of this textbook. Use these to answer the following questions and indicate where in the financial statements you found the information. a. What depreciation method d

> LGIN was founded in 2020 to apply a new technology for the Internet. The company earned a profit of $190,000 in 2020, its first year of operations. Management expects both sales and net income to more than double in each of the next four years. Comparati

> Sexton Company acquired a truck for use in its business for $26,500 in a cash transaction. The truck is expected to be used over a five-year period, will be driven approximately 18,000 miles per year, and is expected to have a value at the end of the fiv

> Bill Gladstone has owned and operated Gladstone’s Service Station for over 30 years. The business, which is currently the town’s only service station, has always been extremely profitable. Gladstone recently decided that he wanted to sell the business an

> For several years, a number of Prestland Company’s grocery stores were unprofitable, leading to a decision to close several of these locations where it was apparent that the company would not beagle to recover the cost of the assets associated with those

> XL Industries uses department budgets and performance reports in planning and controlling its manufacturing operations. The following annual performance report for the widget production department was presented to the president of the company. Although a

> Why are investments in marketable securities shown separately from cash equivalents in the balance sheet?

> Honda Motor Company reports that it has manufacturing facilities in over 25 locations around the world. Only five of those locations are in Japan. Several are in the United States, Europe, and South America. Identify the advantages and disadvantages for

> During the past several years the annual net income of Avery Company has averaged $540,000. At the present time the company is being offered for sale. Its accounting records show the book value of net assets (total assets minus all liabilities) to be $2,

> Willis Bus Service traded in a used bus for a new one. The original cost of the old bus was $52,000. Accumulated depreciation at the time of the trade-in amounted to $34,000. The new bus cost $67,000, but Willis was given a trade-in allowance of $10,000.

> Green Lawns, Inc., performs adjusting entries every month, but closes its accounts only at yearend. The following is the company’s year-end adjusted trial balance dated December 31, current year. a. Prepare an income statement and stat

> Listed as follows are nine technical terms used in this chapter. Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answer “None&acirc

> The division managers of Chester Construction Corporation submit capital investment proposals each year for evaluation at the corporate level. Typically, the total dollar amount requested by the divisional managers far exceeds the company’s capital inves

> Ran’s Supply uses a perpetual inventory system. On January 1, its inventory account had a beginning balance of $7,740,000. Ranns engaged in the following transactions during the year. 1. Purchased merchandise inventory for $11,400,000. 2. Generated net

> Ferrent is debating whether to invest in new equipment to manufacture industrial distilling vats. The new equipment would cost $1,600,000 and would have an estimated eight-year life and no salvage value. The estimated annual operating results with the ne

> Northwest Records is considering the purchase of Seattle Sound, Inc., a small company that promotes and manages blues rock bands. The terms of the agreement require that Northwest pay the current owners of Seattle Sound $600,000 to purchase the company.

> Winett Corporation is considering an investment in special-purpose equipment to enable the company to obtain a six-year municipal contract. The equipment costs $1,320,000 and would have no value when the contract expires at the end of six years. Estimate

> The following information relates to three independent investment decisions, each with a 10-year life and no salvage value. Using the present value tables in Exhibits 26–3 and 26–4, solve for the missing information p

> Refer to Exhibit 15–6 in this chapter. Assume a United Kingdom company, Brits International, lists on both the London Exchange using U.K. GAAP and the New York Stock Exchange. Brits International must prepare a reconciliation from U.K.

> Mineral World recognizes $20 depletion for each ton of ore mined. During the current year the company mined600,000 tons but sold only 500,000 tons, as it was attempting to build up inventories in anticipation of a possible strike by employees. How much d

> Global Motors is a U.S. corporation that purchases automobiles from European manufacturers for distribution in the United States. A recent purchase involved the following events: Instructions: a. Prepare in general journal form the entries necessary to

> Using the tables in Exhibits 26–3 and 26–4, determine the present value of the following cash flows, discounted at an annual rate of 15 percent. a. $60,000 to be received 20 years from today. b. $32,000 to be received

> Wabash, Inc., had revenue and expenses (including income tax) from ongoing business operations for the current year of $480,000 and $430,000, respectively. During the year, the company sold a division of the company that had revenue and expenses (not inc

> Foz Co. is considering four investment proposals (A, B, C, and D). The following table provides data concerning each of these investments. Solve for the missing information pertaining to each investment proposal.

> Baylor Lumber Products is considering the purchase of a high-efficiency conveyor system. Two manufacturers have approached Baylor with proposals: (1) Duke Industries and (2) Wake Manufacturing. Regardless of which vendor Baylor chooses, the following inc

> PC Connection is a leading mail-order retailer of personal computers. A recent financial report issued by the company revealed the following information. a. Compute the company’s cost of goods sold for the year. b. Approximately how mu

> The section entitled “Impairment of Long-Lived Assets” can be found in the Home Depot financial information in Appendix A. In this section, Home Depot explains procedures used to estimate the carrying value of impaired stores that it closes. How does the

> Over the next four years, the City of Mythica, New York, is expecting the following cash flows from a federal grant: year 1—$150,000; year 2—$220,000; year 3—$250,000; year 4—$175,00

> The radiology department at St. Joseph’s Hospital, a not-for-profit, is considering purchasing a magnetic resonance imaging (MRI) machine. The cost to purchase and install an MRI is approximately $2,000,000. Assume St. Josephâ&#12

> Swirl Incorporated designs and manufactures fashionable women’s clothing. For the coming year, the company has scheduled production of 50,000 silk skirts. Budgeted costs for this product are as follows. The management of Swirl is cons

> Refer to Exercise 26.11. Assume Concrete Suppliers Inc. has assembled the following expected annual income statement data for each of its trucks Analyze this income statement data for expected cash flow effects each year. Data from exercise 26.11: Supp

> Suppose Concrete Suppliers Inc. sells one of its $155,000 concrete trucks, with an original fiveyear economic life, at the end of year 3 after taking three years of straight-line depreciation. Concrete Suppliers has a 40 percent tax rate. If the truck is

> EnterTech has noticed a significant decrease in the profitability of its line of its wireless headphones. The production manager believes that the source of the trouble is old, inefficient equipment used to manufacture the product. The issue raised, ther

> Eight Flags is a retail department store. The following cost-volume relationships were used in developing a flexible budget for the company for the current year. Management expected to attain a sales level of $20 million during the current year. At the

> The following are 10 technical accounting terms introduced or emphasized in this chapter. Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answer &aci

> Match each of the following performance measures with one of the four perspectives of the balanced scorecard (Financial—F, Customer—C, Business Process—B, or Learning and Growth L).

> Explain how to compute the average collection period and why it is a critical factor in creating the collections of receivables budget

> Shown as follows are selected transactions of Konshock’s, a retail store that uses a perpetual inventory system. a. Purchased merchandise on account. b. Recognized the revenue from a sale of merchandise on account. (Ignore the related

> Consider the different responsibilities involved in the following three positions at Vortnoy Corporation: (1) supervisor of the second shift at the Fairfield, Rhode Island, plant, (2) manager for the Northeastern Division, and (3) corporatewide chief fin

> You are the manager of the Midwest Region, a 27-restaurant division that is part of the chain “Bites and Bits.” The restaurants offer casual dining and compete with such chains in your region as Olive Garden and Outback Steakhouse. You receive an annual

> Reconsider Exhibit panel B, in the chapter. Use current exchange rates to estimate the global costs of making a Barbie® doll. Has the total cost increased or decreased as a result of changes in exchange rates?

> The Home Depot, Inc., financial statements appear in Appendix A at the end of this textbook. a. Does the company use straight-line depreciation? How can you tell? b. At what point does the company recognize and record revenue from its customers? c. Us

> Jennifer Baskiter is president and CEO of Plants&More.com, an Internet company that sells plants and flowers. The success of her startup Internet company has motivated her to expand and create two divisions. One division focuses on sales to the general p

> An investment center in Shellforth Corporation was asked to identify three proposals for its capital budget. Details of those proposals are as follows. Shellforth uses residual income to evaluate all capital budgeting projects. Its minimum required retu

2.99

See Answer