Question: Massa Company, which has been operating for
Massa Company, which has been operating for three years, provides marketing consulting services worldwide for dot-com companies. You are a financial analyst assigned to report on the Massa management team’s effectiveness at managing its assets efficiently. At the start of 2012 (its fourth year), Massa’s T-account balances were as follows. Dollars are in thousands. 
Required: 1. Using the data from these T-accounts, amounts for the following on January 1, 2012, were Assets $ ________ = Liabilities $ ________ + Stockholders’ Equity $ ________ 2. Enter the following 2012 transactions in the T-accounts: a. Provided $58,000 in services to clients who paid $48,000 in cash and owed the rest on account. b. Received $5,600 cash from clients on account. c. Received $400 in cash as income on investments. d. Paid $36,000 in wages, $12,000 in travel, $7,600 in rent, and $1,600 on accounts payable. e. Received $1,600 in cash from clients in advance of services Massa will provide next year. f. Received a utility bill for $800 for 2012 services. g. Paid $480 in dividends to stockholders. 3. Compute ending balances in the T-accounts to determine amounts for the following on December 31, 2012: Revenues $ ________ − Expenses $ ________ = Net Income $ ________ Assets $ ________ = Liabilities $ ________ + Stockholders’ Equity $ ________ 4. Calculate the total asset turnover ratio for 2012. If the company had an asset turnover ratio of 2.00 in 2011 and 1.80 in 2010, what does your computation suggest to you about Massa Company? What would you say in your report?
Transcribed Image Text:
Assets Cash Accounts Receivable Long-Term Investments 3,200 8,000 6,400 Liabilities Accounts Payable Unearned Revenue Long-Term Notes Payable 2,400 5,600 1,600 Stockholders' Equity Contributed Capital Retained Earnings 4,800 3,200 Revenues Consulting Fee Revenue Investment Income Expenses Wages Expense Travel Expense Utilities Expense Rent Expense
> Contrast an unadjusted trial balance with an adjusted trial balance. What is the purpose of each?
> Explain the effect of adjusting entries on cash.
> What is the equation for each of the following statements: (a) income statement, (b) balance sheet, (c) statement of cash flows, and (d) statement of stockholders’ equity?
> Explain how the financial statements relate to each other.
> List the four types of adjusting entries, and give an example of each type.
> Match each definition with its related term by entering the appropriate letter in the space provided. There should be only one definition per term (that is, there are more definitions than terms). Term Definition (1) Losses (2) Matching principle (3
> What is a post-closing trial balance? Is it a useful part of the accounting information processing cycle? Explain.
> How is net profit margin computed and interpreted?
> How is earnings per share computed and interpreted?
> What is a contra-asset? Give an example of one.
> The following are independent situations. a. A new company is formed and sells 100 shares of stock for $12 per share to investors. b. A company purchases for $18,000 cash a new delivery truck that has a list, or sticker, price of $21,000. c. A women’s
> What is the purpose of recording adjusting entries?
> What is a trial balance? What is its purpose?
> Ellis, Inc., a small service company, keeps its records without the help of an accountant. After much effort, an outside accountant prepared the following unadjusted trial balance as of the end of the annual accounting period, December 31, 2011: Data n
> Ramirez Company is completing the information processing cycle at its fiscal year-end, December 31, 2012. Following are the correct balances at December 31, 2012, for the accounts both before and after the adjusting entries for 2012. Required: 1. Compa
> Refer to P4-3. Brayden Towing Company is at the end of its accounting year, December 31, 2011. The following data that must be considered were developed from the company’s records and related documents: a. On January 1, 2011, the compa
> Frances Sabatier asked a local bank for a $50,000 loan to expand her small company. The bank asked Frances to submit a financial statement of the business to supplement the loan application. Frances prepared the following balance sheet. Required: The
> Refer to P4-2 . Zimmerman Company’s annual accounting year ends on December 31. It is December 31, 2011, and all of the 2011 entries except the following adjusting entries have been made: a. On September 1, 2011, Zimmerman collected si
> Brayden Towing Company is at the end of its accounting year, December 31, 2011. The following data that must be considered were developed from the company’s records and related documents: a. On January 1, 2011, the company purchased a new hauling van at
> Zimmerman Company’s annual accounting year ends on December 31. It is December 31, 2011, and all of the 2011 entries except the following adjusting entries have been made: a. On September 1, 2011, Zimmerman collected six months’ rent of $8,400 on storage
> Dell Inc. is the world’s largest computer systems company selling directly to customers. Products include desktop computer systems, notebook computers, workstations, network server and storage products, and peripheral hardware and softw
> If a company is successful in reducing selling and administrative costs while maintaining sales volume and the sales price of its product, what is the effect on the net profit margin ratio? a. The ratio will increase. b. The ratio will not change. c
> For the transactions in M2-5, identify each as an investing (I) activity or financing (F) activity on the statement of cash flows. M2-5 For each of the following transactions of Pitt Inc. for the month of January 2012, indicate the accounts, amounts,
> What ratio is required by GAAP to be reported on the financial statements or in the notes to the statements? a. Return on equity ratio. b. Net profit margin ratio. c. Earnings per share ratio. d. Current ratio.
> At the beginning of 2011, Donna Company had $1,000 of supplies on hand. During 2011, the company purchased supplies amounting to $6,400 (paid for in cash and debited to Supplies). At December 31, 2011, a count of supplies reflected $2,600. The adjusting
> JJ Company owns a building. Which of the following statements regarding depreciation as used by accountants is false? a. As depreciation is recorded, stockholders’ equity is reduced. b. As depreciation is recorded, the net book value of the asset is re
> An adjusted trial balance a. Shows the ending account balances in a “debit” and “credit” format before posting the adjusting journal entries. b. Is prepared after closing entries have been posted. c. Shows the ending account balances resulting from th
> You are evaluating your current portfolio of investments to determine those that are not performing to your expectations. You have all of the companies’ most recent annual reports. Required: For each of the following, indicate where you would locate t
> Failure to make an adjusting entry to recognize accrued salaries payable would cause which of the following? a. An understatement of expenses, liabilities, and stockholders’ equity. b. An understatement of expenses and liabilities and an overstatement
> On June 1, 2010, Oakcrest Company signed a three-year $100,000 note payable with 9 percent interest. Interest is due on June 1 of each year beginning in 2011. What amount of interest expense should be reported on the income statement for the year ended D
> On October 1, 2011, the $12,000 premium on a one-year insurance policy for the building was paid and recorded as Prepaid Insurance. On December 31, 2011 (end of the accounting period), what adjusting entry is needed? a. Insurance Expense (+E) Prepai
> Which account is least likely to appear in an adjusting journal entry? a. Interest Receivable b. Cash c. Property Tax Expense d. Salaries Payable
> Which of the following accounts would not appear in a closing entry? a. Salary Expense b. Interest Income c. Accumulated Depreciation d. Retained Earnings
> Compute net income based on the adjusted trial balance in M4-8. Then compute Romney’s Marketing Company’s net profit margin for 2012. In M4-8. Romney’s Marketing Company has the following adjusted t
> You are considering investing the cash you inherited from your grandfather in various stocks. You have received the annual reports of several major companies. Required: For each of the following, indicate where you would locate the information in an ann
> Adamson Incorporated is a small manufacturing company that makes model trains to sell to toy stores. It has a small service department that repairs customers’ trains for a fee. The company has been in business for five years. At Decembe
> 1. Prepare a classified balance sheet in good form at December 31, 2012 from the information in M4-8. Romney’s Marketing Company has the following adjusted trial balance at December 31, 2012. No dividends were declared. However, 500 sh
> Refer to M4-8. Prepare a statement of stockholders’ equity in good form for 2012. Romney’s Marketing Company has the following adjusted trial balance at December 31, 2012. No dividends were declared. However, 500 shar
> A recent annual report of The New York Times Company, a diversified media company that currently includes newspapers (including The New York Times ), Internet businesses, and television and radio stations, included the following accounts. Dollars are in
> Romney’s Marketing Company has the following adjusted trial balance at December 31, 2012. No dividends were declared. However, 500 shares issued at the end of the year for $3,000 are included below: Prepare a multi-step income stateme
> For each of the transactions in M4-6, indicate the amounts and direction of effects of the adjusting entry on the elements of the balance sheet and income statement. Using the following format, indicate + for increase, − for decrease, a
> In each of the following transactions ( a ) through ( c ) for Romney’s Marketing Company, use the threestep process illustrated in the chapter to record the adjusting entry at year-end December 31, 2012. The process includes (1) determining if revenue wa
> For each of the transactions in M4-4, indicate the amounts and direction of effects of the adjusting entry on the elements of the balance sheet and income statement. Using the following format, indicate + for increase, − for decrease, a
> In each of the following transactions ( a ) through ( c ) for Romney’s Marketing Company, use the threestep process illustrated in the chapter to record the adjusting entry at year-end December 31, 2012. The process includes (1) determining if revenue wa
> Match each definition with its related term by entering the appropriate letter in the space provided. Delinition Term (1) A revenue not yet earned; collected in advance. (2) Rent not yet collected; already earned. (3) Property taxes incurred; not ye
> Hagadorn Company has the following adjusted accounts and balances at year-end (June 30, 2011): Prepare an adjusted trial balance in good form for the Hagadorn Company at June 30, 2011. Accounts Payable $ 250 Interest Expense $ 70 Accounts Receivabl
> Refer to the adjusted trial balance in M4-8. Prepare the closing entry on December 31, 2012. Romney’s Marketing Company has the following adjusted trial balance at December 31, 2012. No dividends were declared. However, 500 shares issu
> Starwood Hotels & Resorts Worldwide, Inc., is one of the world’s largest hotel and leisure companies. It conducts business both directly and through its subsidiaries, including the following hotel brands: Sheraton, Four Points, W, Aloft, The Luxury Colle
> Match each definition with its related term by entering the appropriate letter in the space provided. Delinition Term (1) At year-end, service revenue of S1,000 was collected in cash but was not yet earned. A. Accrued expense B. Deferred expense C.
> According to a recent Form 10-K report of Mattel, Inc., the company “designs, manufactures, and markets a broad variety of toy products worldwide.” Mattel’s brands include Barbie, Hot Wheels, FisherPr
> You are considering lending a car to a friend so she can drive to Aspen. What costswould you ask her to reimburse? How would your answer change, if at all, if youdecided to go along? Identify the possible options and explain your choices.
> A manager once asked, “How would you calculate the cost of a checking account?” What will be your first question to the manager?
> Does the passage of Sarbanes-Oxley mean that codes of ethics are no longer necessary?
> Identify three key financial managers in an organization and their major responsibilities.
> How can cost accounting information together with a classification of activities intothose that are value-added and those that are nonvalue-added help managers improvean organization’s performance?
> The following story is true except that all names have been changed and the time period has been compressed: Charles Austin graduated from a prestigious business school and took a job in a public accounting firm in Atlanta. A client hired him after five
> Before Miller Cereals can introduce the new cereal, the board of directors has to give their approval. The marketing manager really wants to introduce the new product and believes (honestly) that it will be profitable and an important next step in the fi
> Miller Cereals is a small milling company that makes a single brand of cereal. Recently, a business school intern recommended that the company introduce a second cereal in order to “diversify the product portfolio.” Cu
> The managers of Quince Products (Problem 1-39) decide they will hire a management accountant to help them analyze the decision to expand their product line. They solicit bids from various accountants in the city and receive three proposals. In describing
> Who are the customers of cost accounting?
> Quince Products is a small company in southern California that makes jams and preserves. Recently, a sales rep from one of the company’s suppliers suggested that Quince could increase its profitability by 50 percent if it introduced a s
> Refer to Exhibit 1.5, which shows budgeted versus actual costs. Assume that Carmen’s Cookies is preparing a budget for the month ending November 30. Management prepares the budget for the month ending November 30 by starting with the ac
> Refer to Exhibit 1.5. Assume that Carmen’s Cookies is preparing a budget for the month ending September 30. Management prepares the budget by starting with the actual results for April that appear in Exhibit 1.5. Then, management consid
> Tom’s Tax Services is a small accounting firm that offers tax services to small businesses and individuals. A local store owner has approached Tom about doing his taxes but is concerned about the fees Tom normally charges. The costs and
> KC Services provides landscaping services in Edison. Kate Chen, the owner, is concerned about the recent losses the company has incurred and is considering dropping its lawn services, which she feels are marginal to the company’s busine
> Dewi Hartono is an assistant controller at Giant Engineering, which contracts with the Defense Department to build and maintain roads on military bases. Dewi recently determined that the company was including the direct costs of work for private clients
> Distinguish between the value chain, the supply chain, and the distribution chain.
> Refer to the information in Exercise 1-24. Jon Blake, the cost analyst working in the CFO’s office at the Business School, learns that the building to be rented for the evening program is owned by a company in which the dean is a principal investor. Afte
> Continental Condiments is a large food products firm in Pennsylvania. Its sales staff has a strong incentive plan tied to meeting quarterly budgets. On June 25, Maria Tuzzi, a divisional controller, learns that some of the sales staff asked customers to
> The chapter identified five financial management titles with responsibilities. Required Match the financial management title in the first column with the major responsibility in the second column of the following table: Title ___ CFO ___ Treasurer ___ C
> For each cost accounting development listed below, identify one value chain component where it might be used and described how it could be used in that component. a. Activity-based costing b. Benchmarking c. Cost of quality d. Customer relationship manag
> Refer to Exhibit 1.5, which shows budgeted versus actual costs. Assume that Carmen’s Cookies is preparing a budget for the month ending June 30. Management prepares the budget by starting with the actual results for April 30 that appear
> Refer to the information in Exercise 1-23. The dean of the Business School is considering expanding the BBA program by offering an evening program in a nearby city. The program would be the same size (in terms of students). The school’s CFO estimates tha
> State University Business School (SUBS) offers several degrees, including Bachelor of BusinessAdministration (BBA). The new dean believes in using cost accounting information tomake decisions and is reviewing a staff-developed income statement broken dow
> Betty’s Fashions operates retail stores in both downtown and suburban locations. The companyhas two responsibility centers: the City Division, which contains stores in downtown locations, and the Mall Division, which contains stores in suburban locations
> As an analyst at Delta Airlines, you are asked to help the operations staff. Operations has identified a new method of loading baggage that is expected to result in a 30 percent reductionin labor time but no changes in any other costs. The current labor
> Coastal Cabinets produces cabinets for new home builders. You have been called in to settle adispute between Coastal Cabinets and Executive Homes, a builder of custom homes. Executive Homes buys 20,000 units of a particular cabinet from Coastal Cabinets
> Place the letter of the appropriate accounting cost in Column 2 in the blank next toeach decision category in Column 1. Column 1 ___ Providingcost information for financial reporting ___ Identifying the best store in a chain ___ Determining which plant t
> Apple, Inc. incurs many types of costs in its operations. Required For each cost in the following table, identify the stage in the value chain where this cost is incurred: Cost ___ Programmer costs for a new operating system ___ Costs to ship computers
> Will studying cost accounting increase the chances that Carmen’s Cookies will succeed? How? Will it guarantee success? Explain.
> Why does a cost accountant need to be familiar with new developments in informationtechnology?
> Refer to the Business Application discussion of options backdating. If stock optionsand other forms of performance-based compensation result in some managers engagingin unethical or illegal behavior, why do firms still use them?
> Refer to the Business Application discussion of supply chain costs. A colleague says, “We don’t have to worry about other firms in the supply chain. If every firm in the chain minimizes its own cost, we can minimize the total cost and give the customer t
> What potential conflicts might arise between marketing managers and the controller’sstaff? How might these potential conflicts be resolved with a minimum of interference from the chief executive officer?
> Nabisco (a unit of Kraft Foods) makes a variety of cookies (OreosTM, for example)just like Carmen’s Cookies. In what ways are the cost accounting issues the same? Inwhat ways are they different?
> Airlines are well known for using complex pricing structures. For example, it is often (butnot always) less expensive to buy a ticket in advance than it is on the day of the flight.However, if the airline offered this lower (“discount”) fare for all seat
> Would you support a proposal to develop a set of “generally accepted” accountingstandards for measuring executive performance that would be used to determine compensation?Why or why not?
> “It’s not the job of accounting to determine strategy. It is only used to measure results.”Discuss.
> Explain the differences between financial accounting and cost accounting. Why arethese differences important?
> A client of the CPA firm of Harston and Mendez is a medical practice of seven local doctors. One doctor has been sued for several million dollars as the result of a recent operation. Because of what appears to be this doctor’s very poor judgment, a patie
> The partnership of Wilson, Cho, and Arrington has the following account information: This partnership will be liquidated, and the partners are scheduled to receive cash equal to any endingpositive capital balance. If a negative capital balance results,
> Read the following as well as any other published articles on the bankruptcy of the partnership of Laventhol&Horwath: “Laventhol Says It Plans to File for Chapter 11,” The Wall Street Journal, November 20, 1990, p. A3. “Laventhol Partners Face Long Proce
> If a partnership is liquidated, how is the final allocation of business assets made to the partners? a. Equally. b. According to the profit and loss ratio. c. According to the final capital account balances. d. According to the initial investment made by
> What is a predistribution plan? a. A list of the procedures to be performed during a liquidation. b. A guide for the cash distributions to partners during a liquidation. c. A determination of the final cash distribution to the partners on the settlement
> During a liquidation, if a partner’s capital account balance drops below zero, what should happen? a. The other partners file a legal suit against the partner with the deficit balance. b. The partner with the highest capital balance contributes sufficien
> Which of the following statements is true concerning the accounting for a partnership going throughliquidation? a. Gains and losses are reported directly as increases and decreases in the appropriate capitalaccount. b. A separate income statement is crea
> The balance sheet for the Delphine, Xavier, and Olivier partnership follows: Delphine, Xavier, and Olivier share profits and losses in the ratio of 4:4:2, respectively. The partnershave agreed to terminate the business and estimate that $12,000 in liqu
> The following condensed balance sheet is for the partnership of Miller, Tyson, and Watson, whoshare profits and losses in the ratio of 6:2:2, respectively: For how much money must the other assets be sold so that each partner receives some amount ofcas
> The following condensed balance sheet is for the partnership of Hardwick, Saunders, and Ferris,who share profits and losses in the ratio of 4:3:3, respectively: The partners decide to liquidate the partnership. Forty percent of the other assets are sol
> What is the purpose of a drawing account in a partnership’s financial records?
