Financial Accounting s4

Part (1)

Financial Accounting

Problem (1)

Problem (2)

There are ten transactions listed below. Match the transactions that have the identical effect on the accounting equation. You should end up with 5 matches.

a. Receive cash from customers on account.

b. Initial cash contribution by an owner.

c. Pay cash to reduce accounts payable.

d. Purchase supplies for cash.

e. Pay cash to reduce notes payable.

f. Purchase supplies on account.

g. Additional cash contribution by an owner.

h. Purchase equipment with a note payable.

i. Pay utilities with cash.

j. Company pays dividends to stockholders.

Solution:

Match #1 = a, d

#2 = c, e

#3 = f, h

#4 = b, g

#5 = i, j

Problem (3)

The comparative condensed income statements of Moran Corporation are shown below.

MORAN CORPORATION

Comparative Condensed Income Statements

For the Years Ended December 31

2011 2010

Net sales $600,000 $500,000

Cost of goods sold 450,000 400,000

Gross profit 150,000 100,000

Operating expenses 54,000 40,000

Net income $ 96,000 $ 60,000

Instructions

(a) Prepare a horizontal analysis of the income statement data for Moran Corporation using 2010 as a base. (Show the amounts of increase or decrease.)

(b) Prepare a vertical analysis of the income statement data for Moran Corporation in columnar form for both years.

Solution 19

(a) MORAN CORPORATION

Condensed Income Statements

For the Years Ended December 31

———————————————————————————————————————————

Increase or (Decrease)

During 2010

2011 2010 Amount Percentage

Net sales $600,000 $500,000 $100,000 20.0%

Cost of goods sold 450,000 400,000 50,000 12.5%

Gross profit 150,000 100,000 50,000 50.0%

Operating expenses 54,000 40,000 14,000 35.0%

Net income $ 96,000 $ 60,000 $ 36,000 60.0%

(b) MORAN CORPORATION

Condensed Income Statements

For the Years Ended December 31

———————————————————————————————————————————

2011 2010

Amount Percentage Amount Percentage

Net sales $600,000 100.0% $500,000 100.0%

Cost of goods sold 450,000 75.0% 400,000 80.0%

Gross profit 150,000 25.0% 100,000 20.0%

Operating expenses 54,000 9.0% 40,000 8.0%

Net income $ 96,000 16.0% $ 60,000 12.0%

Problem (4)

Selected financial statement data for Morton Company are presented below.

December 31, 2011 December 31, 2010

Cash $ 40,000 $30,000

Short-term investments 25,000 18,000

Receivables (net) 100,000 80,000

Inventories 85,000 65,000

Total current liabilities 100,000 90,000

During 2011, net sales were $900,000, and cost of goods sold was $705,000.

Instructions

Compute the following ratios at December 31, 2011:

(a) Current.

(b) Acid-test.

(c) Receivables turnover.

(d) Inventory turnover.

Solution:

(a) Current = 2.5:1 ($250,000 ¸ $100,000)

(b) Acid-test = 1.65:1 ($165,000 ¸ $100,000)

(c) Receivables turnover = 10 times [$900,000 ¸ ($100,000 + $80,000) ¸ 2]

(d) Inventory turnover = 9.4 times [$705,000 ¸ ($85,000 + $65,000) ¸ 2]

Problem (5)

Ans: 119 a, 120 c, 121 b, 122 a

Financial Accounting MCQ

1. Accountants refer to an economic event as a

a. purchase.

b. sale.

c. transaction.

d. change in ownership.

Ans: c

2. Which of the following would not be considered internal users of accounting data for a company?

a. The president of a company

b. The controller of a company

c. Creditors of a company

d. Salesmen of the company

Ans: c

3. Which of the following is an external user of accounting information?

a. Labor unions

b. Finance directors

c. Company officers

d. Managers

Ans: a

4. Generally accepted accounting principles are

a. income tax regulations of the Internal Revenue Service.

b. standards that indicate how to report economic events.

c. theories that are based on physical laws of the universe.

d. principles that have been proven correct by academic researchers

Ans: b

5. GAAP stands for

a. Generally Accepted Auditing Procedures.

b. Generally Accepted Accounting Principles.

c. Generally Accepted Auditing Principles.

d. Generally Accepted Accounting Procedures.

Ans: b

6. The common characteristic possessed by all assets is

a. long life.

b. great monetary value.

c. tangible nature.

d. future economic benefit.

Ans: d

7. Revenues would not result from

a. sale of merchandise.

b. initial investment of cash by owner.

c. performance of services.

d. rental of property.

Ans: b

8. A successful grocery store would probably have

a. a low inventory turnover.

b. a high inventory turnover.

c. zero profit margin.

d. low volume.

Ans: b

Part (2)

Cost / Managerial Accounting

EX (1):

The Rocky Catering Company specializes in preparing Mexican dinners that it freezes and ships to restaurants in the Denver area. When a customer orders an item, the restaurant heats and services it. The budget data for 2005 are

The Company prepare the items in the same kitchens, delivers them in the same trucks. Therefore, decisions about the individual products do not affect the fixed costs of $735,000.

1.  Compute the planned net income for 2005.

2.  Compute the break-even point in units, assuming that the company maintains its planned sales mix.

Answer:

1. Net income (loss) = 250,000($2) + 125,000($3) - $735,000

= $500,000 + $375,000 - $735,000

= $140,000

2. Let B = number of units of beef enchiladas to break even (B)

2B = number of units of chicken tacos to break even (C)

Total contribution margin - fixed expenses = zero net income

$3B + $2(2B) - $735,000 = 0

$7B = $735,000

B = 105,000

2B = 210,000 = C

The break-even point is 105,000 units of beef enchiladas plus 210,000 units of chicken tacos, a grand total of 315,000 units.

EX (2):

Assuming a constant mix of 3 units of Alpha for every 1 unit of Beta, a selling price of $21.60 for Alpha and $28.80 for Beta, variable costs per unit of $14.40 for Alpha and $16.80 for Beta, and total fixed costs of $53,760, the breakeven point in units would be:

a. 4,800 units of Alpha and 1,600 units of Beta

b. 1,200 units of Alpha and 400 units of Beta

c. 1,600 units of Alpha and 4,800 units of Beta

d. 40,320 units of Alpha and 13,440 units of Beta

Alpha Beta

Sales $21.60 $28.80

Variable costs 14.40 16.80

Contribution margin $7.20 $12.00

Sales mix x 3 x 1

Contribution margin per mix $21.60 $12.00

Total contribution margin per mix = $21.60 + $12.00 = $33.60

Break-even point in composite units = $53,760 / $33.60 = 1,600

Alpha: 1,600 x 3 = 4,800 units

Beta: 1,600 x 1 = 1,600 units

EX (3):

Jefferson Company produces only product A. The following information is available:

Selling price per unit $95

Variable costs per unit $70

Total fixed costs $130,000

Required:

a. Compute breakeven point in units.

b. Compute breakeven volume in dollars.

Answer:

a. $130,000 / ($95 - $70) = 5,200 units

b. 5,200 units x $95/unit = $494,000

EX (4):

The following information is for Wood Products Corporation:

Total fixed costs $345,700

Unit variable costs $50.95

Unit selling price $68.50

Required:

a. Compute the contribution margin per unit.

b. Compute the contributionmargin ratio.

c. Compute the breakeven point in units.

d. Compute the breakeven volume in dollars.

Answer:

a. $68.50 - $50.95 = $17.55 per unit

b. $17.55 / $68.50 = .2562

c. $345,700 / $17.55 = 19,698 units

d. 19,698 units x $68.50 = $1,349,313

EX (5):

The Yetmar Family Restaurant is open 24 hours per day serving breakfast, lunch, and dinner. Fixed costs are $24,000 per month. Variable costs are estimated at $9.60 per meal. The average total bill (excluding tax and tip) is $12 per customer.

Required:

a. Compute the number of meals that must be served if the Family Restaurant wishes to earn a profit before taxes of $6,000.

b. Compute the breakeven point in meals.

c. Compute the breakeven volume in dollars.

d. Assume that fixed costs increase to $30,000. How many additional meals must be served if the Yetmar Family Restaurant wishes to earn the same before-tax profit?

Answer:

a. ($24,000 + $6,000) / ($12.00 - $9.60) = 12,500 meals

b. $24,000 / ($12.00 - $9.60) = 10,000 meals

c. 10,000 meals x $12 per meal = $120,000

d. ($30,000 - $24,000) / ($12.00 - $9.60) = 2,500 meals

EX (6):

Dodger Company produces two products, X and Y. The following information is presented for both products:

X Y

Selling price per unit $46 $36

Variable cost per unit $38 $24

Total fixed costs are $234,000. Dodger Company plans to sell 21,000 units of product X and 7,000 units of product Y.

Compute:

a.  Contribution margin for each product

b. Current net income

c. Breakeven point in units of both X and Y if the sales mix is 3 units of X for every unit of Y

d. Breakeven volume in total dollars if the sales mix is 2 units of X for every 3 units of Y

Answer:

a. X: $46 $38 = $8

Y: $36 $24 = $12

b. (21,000 x $8) + (7,000 x $12) - $234,000 = $18,000

c. 21,000:7,000 = 3:1

(3 x $8) + (1 x $12) = $36

$234,000 / $36 = 6,500 units

X: 6,500 x 3 = 19,500 units

Y: 6,500 x 1 = 6,500 units

d. (2 x $8) + (3 x $12) = $52

$234,000 / $52 = 4,500 units

X: 4,500 x 2 = 9,000 x $46 = $414,000

Y: 4,500 x 3 = 13,500 x $36 = $486,000

Total dollar sales = $900,000

EX (7):

Fill in the blanks for each of the following independent cases (ignore income taxes):

Answer:

1. CM= 400000 NI= 100000

2. VC= 300000 FC= 100000

3. Sales= 940000 NI= 90000

EX (8):

ABC Company specializes in hauling heavy goods over long distances. The company's revenues and expenses depend on revenue miles, a measure that combines both weights and mileage. Summarized budget data for next year are based on predicted total revenue miles of 800,000. At that level of volume, and at any level of volume between 700,000 and 900,000 revenue miles, the company's fixed costs are $120,000. The selling price and variable costs are

1-  Compute contribution margin ratio and break-even point in dollars.

2-  Compute the budgeted net income. Ignore income taxes.

Answer:

1. CM = Selling price- VC/ mile

= 2- 1.7= 0.3

BEP= 120000/ 0.3= 400000 miles × 2= $ 800000

2. CM- FC= NI

0.3 × 800000 = 120000

EX (9):

Answer: 102 D , 103 A , 104 C

EX (10):

Answer: A

Ex (11):

Answer: B

EX (12):

Answer: 112 B , 113 D

EX (13):

Answer: C

EX (14):

Answer: 117 B , 118 D

EX (15):

Answers: 126 C , 127 D

EX (16):

Answers: 128 B , 129 B

EX (17):

Answer: B

EX (18):

Answer: B

EX (19):

EX (20):

In Alpha manufacturing company, the machine hours for one month amounted 1,000 and total cost of maintenance amounted $5,000. If the machine hours (cost driver) is duplicated, the total cost will increase by 60%.

Required:

1.  Estimate the cost function and comment on it.

2.  Estimate the machine hours if total cost of maintenance amounted $14500.

Answer:

b= (8000- 5000) ÷ (2000 – 1000)

= 3000 ÷ 1000

= $3/ Mhr

Y= a + bx

5000= a+ 3× 1000

a= 5000- 3000= 2000

1. Cost equation(function):

Y = 2000 + 3X

2. Y = 2000 + 3X

14500= 2000+ 3x

14500- 2000= 3x

X = 12500÷3= 4167 Mhrs

EX (21):

Answer:

B= difference in costs/ difference in volume

= (22000 – 16500) ÷ (1600 – 1100)

= 5500 ÷ 500

= $11/ unit

Y= a + bx

22000 = a + 11 × 1600

a= 22000- 17600= 4400

Cost equation:

Y = 4400 + 11X

EX (22):

Question (1) [Inventory Costing]

Given the following information for the month of December:

A company had inventory of 5 units at a cost of $20 each on December 1.

On December 10, they purchased 10 units at $22 each.

On December 15 they purchased 6 units at $25 each.

On December 20, they sold 18 units for $54 each.

Complete the following table

Solution:

FIFO

Cost of goods available for sale= (5 x 20) + (10 x 22) + (6 x 25) = $470

Number of Units available for sale = 5 + 10 +6 = 21 units

Ending Inventory = 21 units – 18 units = 3 units

Cost of Ending Inventory = 3 units x 25 = $75

Cost of goods sold = 470 – 75 = $395

LIFO

Cost of goods available for sale= (5 x 20) + (10 x 22) + (6 x 25) = $470

Number of Units available for sale = 5 + 10 +6 = 21 units

Ending Inventory = 21 units – 18 units = 3 units

Cost of Ending Inventory = 3 units x 20 = $60

Cost of goods sold = 470 – 60 = $410

Average Cost

Average cost per unit = Cost of goods available for sale ÷ Number of Units available for sale

= $470 ÷ 21 units ≈ $22.38 / unit

Cost of Ending Inventory = 3 units x 22.38 = $67.14

Cost of goods sold = 470 – 67.14 = 402.14 ≈ 18 units x 22.38 = 402.84