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Question: What is activity-based costing, and what


What is activity-based costing, and what are its potential benefits?



> The following information is available for Aikman Company Instructions: (a) Compute cost of goods manufactured. (b) Prepare an income statement through gross profit. (c) Show the presentation of the ending inventories on the December 31, 2014, balance

> Joyce Tombert, the bookkeeper for Marks Consulting, a political consulting firm, has recently completed a managerial accounting course at her local college. One of the topics covered in the course was the cost of goods manufactured schedule. Joyce wonder

> Cepeda Corporation has the following cost records for June 2014. Instructions: (a) Prepare a cost of goods manufactured schedule for June 2014. (b) Prepare an income statement through gross profit for June 2014 assuming sales revenue is $92,100. $

> Incomplete manufacturing cost data for Colaw Company for 2014 are presented as follows for four different situations. Instructions: (a) Indicate the missing amount for each letter. (b) Prepare a condensed cost of goods manufactured schedule for situati

> Manufacturing cost data for Copa Company are presented below. Instructions: Indicate the missing amount for each letter (a) through (i). Case A Case B Case C Direct materials used Direct labor $ (a) 57,000 46,500 $68,400 86,000 81,600 $130,000 (g)

> Richard Larkin has prepared the following list of statements about managerial accounting and financial accounting. 1. Financial accounting focuses on providing information to internal users. 2. Analyzing cost-volume-profit relationships is part of manage

> Kinder Company has these comparative balance sheet data: Additional information for 2014: 1. Net income was $25,000. 2. Sales on account were $375,000. Sales returns and allowances amounted to $25,000. 3. Cost of goods sold was $198,000. 4. Net cash pr

> Nordstrom, Inc. operates department stores in numerous states. Suppose selected financial statement data (in millions) for 2014 are presented below. For the year, net credit sales were $8,258 million, cost of goods sold was $5,328 million, and net cash

> Here are the comparative income statements of Eudaley Corporation. Instructions: (a) Prepare a horizontal analysis of the income statement data for Eudaley Corporation, using 2013 as a base. (Show the amounts of increase or decrease.) (b) Prepare a ver

> On January 1, 2014, Jenner Inc. changed from the LIFO method of inventory pricing to the FIFO method. Explain how this change in accounting principle should be treated in the company’s financial statements.

> Suppose the comparative balance sheets of Nike, Inc. are presented here Instructions: (a) Prepare a horizontal analysis of the balance sheet data for Nike, using 2013 as a base. (Show the amount of increase or decrease as well.) (b) Prepare a vertical

> Operating data for Jacobs Corporation are presented below. Instructions: Prepare a schedule showing a vertical analysis for 2014 and 2013. 2014 2013 Sales revenue Cost of goods sold Selling expenses Administrative expenses $800,000 520,000 $600,000

> Here is financial information for Spangles Inc. Instructions: Prepare a schedule showing a horizontal analysis for 2014, using 2013 as the base year. December 31, 2014 Current assets Plant assets (net) Current liabilities Long-term liabilities Comm

> The Wall Street Journal routinely publishes summaries of corporate quarterly and vannual earnings reports in a feature called the “Earnings Digest.” A typical “digest” report takes t

> The condensed financial statements of Elliott Company for the years 2013 and 2014 are presented below. Compute the following ratios for 2014 and 2013. (a) Current ratio. (b) Inventory turnover. (Inventory on December 31, 2012, was $340.) (c) Profit mar

> Santo Corporation experienced a fire on December 31, 2014 in which its financial records were partially destroyed. It has been able to salvage some of the records and has ascertained the following balances. Additional information: 1. The inventory turn

> Suppose selected comparative statement data for the giant bookseller Barnes & Noble are presented here. All balance sheet data are as of the end of the fiscal year (in millions). Instructions: Compute the following ratios for 2014. (a) Profit margi

> Information for two companies in the same industry, Patton Corporation and Sager Corporation, is presented here. Instructions: Using the cash-based measures presented in this chapter, compare the (a) liquidity and (b) solvency of the two companies.

> Suppose presented below is 2014 information for PepsiCo, Inc. and The Coca-Cola Company. Instructions: Using the cash-based measures presented in this chapter, compare the (a) liquidity and (b) solvency of the two companies. ($ in millions) Net cas

> Shown below and on the next page are comparative balance sheets for Schmitt Company. Additional information: 1. Net income for 2014 was $93,000. 2. Depreciation expense was $34,000. 3. Cash dividends of $39,000 were declared and paid. 4. Bonds payable

> Manuel, Inc. reported net income of $2.5 million in 2014. Depreciation for the year was $160,000, accounts receivable decreased $350,000, and accounts payable decreased $280,000. Compute net cash provided by operating activities using the indirect approa

> The three accounts shown below appear in the general ledger of Lauber Corp. during 2014. Instructions: From the postings in the accounts, indicate how the information is reported on a statement of cash flows using the indirect method. The loss on dispo

> The following information is available for Ramos Corporation for the year ended December 31, 2014. Beginning cash balance …………………………………………………. $ 45,000 Accounts payable decrease ……………………………………………………3,700 Depreciation expense ………………………………………………………. 162,00

> The current sections of Sanford Inc.’s balance sheets at December 31, 2013 and 2014, are presented here. Sanford’s net income for 2014 was $153,000. Depreciation expense was $27,000. Instructions: Prepare the net cas

> Cosi Company reported net income of $190,000 for 2014. Cosi also reported depreciation expense of $35,000 and a loss of $5,000 on the disposal of plant assets. The comparative balance sheet shows an increase in accounts receivable of $15,000 for the year

> The information in the table is from the statement of cash flows for a company at four different points in time (A, B, C, and D). Negative values are presented in parentheses. Instructions: For each point in time, state whether the company is most like

> The following information is taken from the 2014 general ledger of Praeger Company Instructions: In each case, compute the amount that should be reported in the operating activities section of the statement of cash flows under the direct method. Re

> The following information is available for Taliaferro Corp. for 2014. Cash used to purchase treasury stock ………………………………………………..$ 48,100 Cash dividends paid …………………………………………………………………………….21,800 Cash paid for interest …………………………………………………………………………..22,400

> Suppose the 2014 income statement for McDonald’s Corporation shows cost of goods sold $5,178.0 million and operating expenses (including depreciation expense of $1,216.2 million) $10,725.7 million. The comparative balance sheet for the year shows that in

> Metzger Company completed its first year of operations on December 31, 2014. Its initial income statement showed that Metzger had sales revenue of $198,000 and operating expenses of $83,000. Accounts receivable and accounts payable at year-end were $60,0

> The following stockholders’ equity accounts, arranged alphabetically, are in the ledger of Roder Corporation at December 31, 2014. Common Stock ($2 stated value) …………………………………………………..$1,600,000 Paid-in Capital in Excess of Par Value—Preferred Stock …………

> Andrea Hanlin is planning to start a business. Identify for Andrea the advantages and disadvantages of the corporate form of business organization.

> Wells Fargo & Company, headquartered in San Francisco, is one of the nation’s largest financial institutions. Suppose it reported the following selected accounts (in millions) as of December 31, 2014. Retained earnings …………………………………………………………………..$41,563

> On January 1, Vanessa Corporation had 60,000 shares of no-par common stock issued and outstanding. The stock has a stated value of $4 per share. During the year, the following transactions occurred. Apr. 1 Issued 9,000 additional shares of common stock

> Garcia Corporation recently hired a new accountant with extensive experience in accounting for partnerships. Because of the pressure of the new job, the accountant was unable to review what he had learned earlier about corporation accounting. During the

> The stockholders’ equity section of Leyland Corporation’s balance sheet at December 31 is presented here. Instructions: From a review of the stockholders’ equity section, answer the following questi

> Meranda Corporation is authorized to issue both preferred and common stock. The par value of the preferred is $50. During the first year of operations, the company had the following events and transactions pertaining to its preferred stock. Feb. 1 Issu

> Fagan Co. had these transactions during the current period. June 12 Issued 80,000 shares of $1 par value common stock for cash of $300,000. July 11 Issued 3,000 shares of $100 par value preferred stock for cash at $106 per share. Nov. 28 Purchased

> On January 1, 2014, Wilkens Corporation had $1,200,000 of common stock outstanding that was issued at par and retained earnings of $750,000. The company issued 30,000 shares of common stock at par on July 1 and earned net income of $400,000 for the year.

> Atlantic Airlines is considering these two alternatives for financing the purchase of a fleet of airplanes: 1. Issue 50,000 shares of common stock at $40 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) 2. Issue 12%,

> Korsak Corporation decided to issue common stock and used the $300,000 proceeds to redeem all of its outstanding bonds on January 1, 2014. The following information is available for the company for 2013 and 2014 Instructions: (a) Compute the return on

> The following accounts appear in the ledger of Polzin Inc. after the books are closed at December 31, 2014. Common Stock (no-par, $1 stated value, 400,000 shares authorized, 250,000 shares issued) ………………………………………………$ 250,000 Paid-in Capital in Excess o

> Linton Company has these obligations at December 31: (a) a note payable for $100,000 due in 2 years, (b) a 10-year mortgage payable of $200,000 payable in ten $20,000 annual payments, (c) interest payable of $15,000 on the mortgage, and (d) accounts

> Trayer Company obtains $20,000 in cash by signing a 9%, 6-month, $20,000 note payable to First Bank on July 1. Trayer’s fiscal year ends on September 30. What information should be reported for the note payable in the annual financial statements?

> Samuel Engels says that liquidity and solvency are the same thing. Is he correct? If not, how do they differ?

> Peggy Jantzen believes a current liability is a debt that can be expected to be paid in one year. Is Peggy correct? Explain.

> Jack and Lance are discussing how the market price of a bond is determined. Jack believes that the market price of a bond is solely a function of the amount of the principal payment at the end of the term of a bond. Is he right? Discuss.

> Assume that Ziegler Inc. sold bonds with a face value of $100,000 for $104,000. Was the market interest rate equal to, less than, or greater than the bonds’ contractual interest rate? Explain.

> Identify the liabilities classified by Tootsie Roll as current.

> Explain what is meant by “balanced” in the balanced scorecard approach.

> Why is product quality important for companies that implement a just-in-time inventory system?

> What is the value chain? Describe, in sequence, the main components of a manufacturer’s value chain.

> During its first year of operations, Rosa Corporation had these transactions pertaining to its common stock. Jan. 10 Issued 30,000 shares for cash at $5 per share. July 1 Issued 60,000 shares for cash at $7 per share. Instructions: (a) Journalize the t

> In what order should manufacturing inventories be listed in a balance sheet?

> The determination of the cost of goods manufactured involves the following factors: (A) beginning work in process inventory, (B) total manufacturing costs, and (C) ending work in process inventory. Identify the meaning of x in the following formulas:

> Identify the differences in the cost of goods sold section of an income statement between a merchandising company and a manufacturing company.

> Tina Burke is confused about the differences between a product cost and a period cost. Explain the differences to Tina.

> Dakota University sold 9,000 season football tickets at $100 each for its five-game home schedule. What entries should be made (a) when the tickets are sold and (b) after each game?

> How are manufacturing costs classified?

> Jerry Lang is unclear as to the difference between the balance sheets of a merchandising company and a manufacturing company. Explain the difference to Jerry.

> (a) “Managerial accounting is a field of accounting that provides economic information for all interested parties.” Do you agree? Explain. (b) Joe Delong believes that managerial accounting serves only manufacturing firms. Is Joe correct? Explain.

> Quick Mart, a retail store, has an accounts receivable turnover of 4.5 times. The industry average is 12.5 times. Does Quick Mart have a collection problem with its receivables?

> What amount did Tootsie Roll Industries report as “Other comprehensive earnings” in 2011? By what percentage did Tootsie Roll’s “Comprehensive earnings” differ from its “Net earnings”?

> On August 1, 2014, Ortega Corporation issued $600,000, 7%, 10-year bonds at face value. Interest is payable annually on August 1. Ortega’s year-end is December 31. Instructions: Prepare journal entries to record the following events. (a) The issuance of

> Indicate which of the following items would be reported as an extraordinary item on Pitchford Corporation’s income statement. (a) Loss from damages caused by a volcano eruption in Iona. (b) Loss from the sale of short-term investments. (c) Loss attributa

> Give examples of accrual-based and cashbased ratios to measure each of these characteristics of a company: (a) Liquidity. (b) Solvency.

> During 2014, Markowitz Company exchanged $1,700,000 of its common stock for land. Indicate how the transaction would be reported on a statement of cash flows, if at all.

> Identify five items that are adjustments to convert net income to net cash provided by operating activities under the indirect method.

> Based on its statement of cash flows, in what stage of the product life cycle is Tootsie Roll Industries?

> Trayer Company obtains $20,000 in cash by signing a 9%, 6-month, $20,000 note payable to First Bank on July 1. Trayer’s fiscal year ends on September 30. What information should be reported for the note payable in the annual financial statements?

> Diane Hollowell and Terry Parmenter were discussing the format of the statement of cash flows of Snowbarger Co. At the bottom of Snowbarger’s statement of cash flows was a separate section entitled “Noncash investing and financing activities.” Give three

> What was the total cost of Tootsie Roll’s treasury stock at December 31, 2011? What was the amount of the 2011 cash dividend? What was the total charge to Retained Earnings for the 2011 stock dividend?

> Under what circumstances will the return on assets and the return on common stockholders’ equity be equal?

> Roy Toth, a friend of yours, has recently purchased a home for $125,000, paying $25,000 down and the remainder financed by a 6.5%, 20-year mortgage, payable at $745.57 per month. At the end of the first month, Roy receives a statement from the bank indic

> Goins Corporation issued a $50,000, 10%, 10-year installment note payable on January 1, 2014. Payments of $8,137 are made each January 1, beginning January 1, 2015. Instructions: (a) What amounts should be reported under current liabilities related to t

> Roy Toth, a friend of yours, has recently purchased a home for $125,000, paying $25,000 down and the remainder financed by a 6.5%, 20-year mortgage, payable at $745.57 per month. At the end of the first month, Roy receives a statement from the bank indic

> Samuel Engels says that liquidity and solvency are the same thing. Is he correct? If not, how do they differ?

> Jack and Lance are discussing how the market price of a bond is determined. Jack believes that the market price of a bond is solely a function of the amount of the principal payment at the end of the term of a bond. Is he right? Discuss.

> Assume that Ziegler Inc. sold bonds with a face value of $100,000 for $104,000. Was the market interest rate equal to, less than, or greater than the bonds’ contractual interest rate? Explain.

> Identify the liabilities classified by Tootsie Roll as current.

> Dakota University sold 9,000 season football tickets at $100 each for its five-game home schedule. What entries should be made (a) when the tickets are sold and (b) after each game?

> Peggy Jantzen believes a current liability is a debt that can be expected to be paid in one year. Is Peggy correct? Explain.

> “Decision-making is management’s most important function.” Do you agree? Why or why not?

> Explain how the treatment of cash equivalents will probably change in the future.

> Match the descriptions that follow with the corresponding terms. Descriptions: 1. ______ Inventory system in which goods are manufactured or purchased just as they are needed for sale. 2. ______ A method of allocating overhead based on each product’s use

> Nance Co. receives $280,000 when it issues a $280,000, 6%, mortgage note payable to finance the construction of a building at December 31, 2014. The terms provide for semiannual installment payments of $14,285 on June 30 and December 31. Instructions: P

> Indicate whether the following statements are true or false. 1. Managerial accountants explain and report manufacturing and nonmanufacturing costs, determine cost behaviors, and perform cost-volume-profit analysis, but are not involved in the budget proc

> State whether each of the following is an indicator of a company’s liquidity, solvency, or profitability. (a) Price-earnings ratio. (b) Inventory turnover. (c) Debt to assets ratio. (d) Times interest earned. (e) Return on common stockholders’ equity. (f

> Morray Corporation had the following transactions. 1. Issued $160,000 of bonds payable. 2. Paid utilities expense. 3. Issued 500 shares of preferred stock for $45,000. 4. Sold land and a building for $250,000. 5. Loaned $30,000 to Dead End Corporation, r

> Eddy Corporation began operations on April 1 by issuing 55,000 shares of $5 par value common stock for cash at $13 per share. Journalize the issuance.

> Indicate whether each of the following statements is true or false. ______ 1. The corporation is an entity separate and distinct from its owners. ______ 2. The liability of stockholders is normally limited to their investment in the corporation. ______ 3

> Gibbs Corporation purchased 2,000 shares of its $10 par value common stock for $76,000 on August 1. It will hold these in the treasury until resold. Journalize the treasury stock transaction

> During the month of February, Morrisey Corporation’s employees earned wages of $74,000. Withholdings related to these wages were $5,661 for Social Security (FICA), $7,100 for federal income tax, and $1,900 for state income tax. Costs incurred for unemplo

> During the month of February, Morrisey Corporation’s employees earned wages of $74,000. Withholdings related to these wages were $5,661 for Social Security (FICA), $7,100 for federal income tax, and $1,900 for state income tax. Costs incurred for unemplo

> On January 1, Newkirk Company issued $300,000, 8%, 10-year bonds at face value. Interest is payable annually on January 1. Instructions: Prepare journal entries to record the following events. (a) The issuance of the bonds. (b) The accrual of interest o

> Season tickets for the Wildcats are priced at $320 and include 16 games. Revenue is recognized after each game is played. When the season began, the amount credited to Unearned Ticket Revenue was $1,728,000. By the end of October, $1,188,000 of the Unear

> Gomez Company issued $380,000, 7%, 10-year bonds on January 1, 2014, for $407,968. This price resulted in an effective-interest rate of 6% on the bonds. Interest is payable annually on January 1. Gomez uses the effective-interest method to amortize bond

> Valenti Company Ltd. publishes a monthly sports magazine, Fishing Preview. Subscriptions to the magazine cost $28 per year. During November 2014, Valenti sells 6,300 subscriptions for cash, beginning with the December issue. Valenti prepares financial st

> Season tickets for the Wildcats are priced at $320 and include 16 games. Revenue is recognized after each game is played. When the season began, the amount credited to Unearned Ticket Revenue was $1,728,000. By the end of October, $1,188,000 of the Unear

> In providing accounting services to small businesses, you encounter the following situations pertaining to cash sales. 1. Furcal Company enters sales and sales taxes separately on its cash register. On April 10, the register totals are sales $22,000 and

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