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Question: What is the difference between preparing the


What is the difference between preparing the statement of cash flows using the direct method and using the indirect method?



> Secor Educational Services had budgeted its training service charge at $120 per hour. The company planned to provide 30,000 hours of training services during Year 3. By lowering the service charge to $114 per hour, the company was able to increase the ac

> Charlie Stork rented a truck for his business on two previous occasions. Since he will soon be renting a truck again, he would like to analyze his bills and determine how the rental fee is calculated. His two bills for truck rental show that on September

> According to its original plan, Topeka Consulting Services Company plans to charge its customers for service at $120 per hour in Year 2. The company president expects consulting services provided to customers to reach 45,000 hours at that rate. The marke

> Exercise 8-5A Determining flexible budget variances Use the standard price and cost data provided in Exercise 8-1A. Assume that the actual sales price is $11.76 per unit and that the actual variable cost is $6.90 per unit. The actual fixed manufacturing

> Use the information provided in Exercise 8-1A. 1. Determine the sales and variable cost volume variances. 2. Classify the variances as favorable (F) or unfavorable (U). 3. Comment on the usefulness of the variances with respect to performance evaluation

> Compute variances for the following items and indicate whether each variance is favorable (F) or unfavorable (U).

> Indicate whether each of the following variances is favorable or unfavorable. The first one has been done as an example.

> Reardan Company established a predetermined fixed overhead cost rate of $29 per unit of product. The company planned to make 7,000 units of product but actually produced only 6,500 units. Actual fixed overhead costs were $212,000. Required 1. Determine t

> Cheney Company established a predetermined variable overhead cost rate at $21.00 per direct labor hour. The actual variable overhead cost rate was $19.20 per hour. The planned level of labor activity was 76,000 hours of labor. The company actually used 8

> Pella Car Wash Inc. expected to wash 2,000 cars during the month of August. Washing each car was expected to require 0.2 hour of labor. The company actually used 420 hours of labor to wash 1,880 cars. The labor usage variance was $880 unfavorable. Requir

> Russell and Sons, a CPA firm, established the following standard labor cost data for completing what the firm referred to as a Class 2 tax return. Russell expected each Class 2 return to require 4.0 hours of labor at a cost of $30 per hour. The firm actu

> Lucas Manufacturing Company incurred a favorable labor price variance and an unfavorable labor usage variance. Required 1. Describe a scenario in which the personnel manager is responsible for the unfavorable usage variance. 2. Describe a scenario in whi

> Advances in biological technology have enabled two research companies, Bio Labs, Inc., and Scientific Associates, to develop an insect-resistant corn seed. Neither company is financially strong enough to develop the distribution channels necessary to bri

> Fulton Fruit Basket Company makes baskets of assorted fruit. The standard and actual costs of oranges used in each basket of fruit follow. Fulton actually produced 25,000 baskets. Required 1. Determine the materials price variance and indicate whether it

> Monique’s Florals produced a special Mother’s Day arrangement that included eight roses. The standard and actual costs of the roses used in each arrangement follow. Monique’s Florals planned to make 7

> Misty McDougall is the manager of the Fowler Bagel Shop. The corporate office had budgeted her store to sell 3,000 ham sandwiches during the week beginning July 17. Each sandwich was expected to contain 6 ounces of ham. During the week of July 17, the st

> Cherokee Manufacturing Company established the following standard price and cost data. Cherokee planned to produce and sell 2,000 units. Actual production and sales amounted to 2,200 units. Required 1. Prepare the pro forma income statement in contributi

> Nunn Company, which sells electric razors, had $200,000 of cost of goods sold during the month of June. The company projects a 5 percent increase in cost of goods sold during July. The inventory balance as of June 30 is $15,000, and the desired ending in

> Dickey Books buys books and magazines directly from publishers and distributes them to grocery stores. The wholesaler expects to purchase the following inventory. Dickey Books’ accountant prepared the following schedule of cash payments

> Lumpkin Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Lumpkin’s policy is to maintain an ending inventory balance equal to 10 percent of the followi

> Ozark Company operates a candy store located in a large shopping mall. Required Write a brief memo describing the sales pattern that you would expect Ozark to experience during the year. In which months will sales likely be high? In which months will sal

> Carmen’s Dress Delivery operates a mail-order business that sells clothes designed for frequent travelers. It had sales of $400,000 in December. Because Carmen’s Dress Delivery is in the mail-order business, all sales are made on account. The company exp

> Axon Corporation, which has three divisions, is preparing its sales budget. Each division expects a different growth rate because economic conditions vary in different regions of the country. The growth expectations per quarter are 4 percent for Cummings

> Candice Sterling is a veterinarian. She has always been concerned for the pets of low-income families. These families love their pets but frequently do not have the means to provide them proper veterinary care. Dr. Sterling decides to open a part-time ve

> The budget director of Heather’s Florist has prepared the following sales budget. The company had $50,000 in accounts receivable on July 1. Heather’s Florist normally collects 100 percent of accounts receivable in the

> Magnificent Modems has excess production capacity and is considering the possibility of making and selling security tokens. The following estimates are based on a production and sales volume of 1,000 security tokens. Unit-level manufacturing costs are ex

> Use the same transaction data for Magnificent Modems, Inc. Required 1. Use the following partially completed form to prepare an income statement using the contribution margin format. Sales revenue $600,000 Variable costs Contribution margin 225,000 Fixe

> Use the same transaction data for Magnificent Modems, Inc. Required 1. Based on these data, identify each cost incurred by the company as (1) fixed versus variable relative to the number of units produced and sold; and (2) product versus selling, general

> Why are the salaries of production workers accumulated in an inventory account instead of being expensed on the income statement?

> Magnificent Modems, Inc., makes modem cards that are used in notebook computers. The company completed the following transactions during Year 1. All purchases and sales were made with cash. 1. Acquired $750,000 of cash from the owners. 2. Purchased $270,

> What does the statement “costs can be assets or expenses” mean?

> How does product costing used in financial accounting differ from product costing used in managerial accounting?

> What are the two dimensions of a total quality management (TQM) program? Why is TQM being used in business practice?

> What does the value-added principle mean as it applies to managerial accounting information? Give an example of value-added information that may be included in managerial accounting reports but is not shown in publicly reported financial statements.

> What are some differences between financial and managerial accounting?

> If Best Company sold land that cost $4,200 at a $500 gain, how much cash did it collect from the sale of land?

> Does depreciation expense affect net cash flow? Explain.

> Which of the following activities are financing activities? (a) Payment of accounts payable. (b) Payment of interest on bonds payable. (c) Sale of common stock. (d) Sale of preferred stock at a premium. (e) Payment of a cash dividend.

> Clover Company had a beginning balance in unearned revenue of $4,300 and an ending balance of $3,200. Net income amounted to $54,000. Based on this information alone, determine the amount of net cash flow from operating activities.

> Forsyth Company had a beginning balance in utilities payable of $3,300 and an ending balance of $5,200. Net income amounted to $87,000. Based on this information alone, determine the amount of net cash flow from operating activities.

> During Year 3, Anywhere Inc. (AI) incurred the following product costs. Raw materials $62,000 Labor 89,422 Overhead 58,000 Recall that the Year 2 ending balance in the Work in Process (WIP) account was $26,000. Accordingly, this is the beginning WIP bala

> Albring Company had a beginning balance in accounts receivable of $12,000 and an ending balance of $14,000. Net income amounted to $110,000. Based on this information alone, determine the amount of net cash flow from operating activities.

> What are noncash investing and financing activities? Provide an example. How are such transactions shown on the statement of cash flows?

> What are the three categories of cash flows reported on the cash flow statement? Discuss each and give an example of an inflow and an outflow for each category.

> Can a company report negative net cash flows from operating activities for the year on the statement of cash flows but still have positive net income on the income statement? Explain.

> How would Best Company report the following transactions on the statement of cash flows? (a) Purchased new equipment for $46,000 cash. (b) Sold old equipment for $8,700 cash. The equipment had a book value of $4,900.

> What is the advantage of using the direct method to present the statement of cash flows?

> What is the major advantage of using the indirect method to present the statement of cash flows?

> Which method (direct or indirect) of presenting the statement of cash flows is more intuitively logical? Why?

> In which section of the statement of cash flows would the following transactions be reported? (a) The amount of the change in the balance of accounts receivable. (b) Cash purchase of investment securities. (c) Cash purchase of equipment. (d) Cash sale of

> Magnificent Modems Inc. acquired a subsidiary named Anywhere Inc. (AI). AI manufactures a wireless modem that enables users to access the Internet through cell phones. The following Balance Sheet was drawn from the accounts of the subsidiary. The subsidi

> If Best Company sold office equipment that originally cost $7,500 and had $7,200 of accumulated depreciation at a $100 loss, what was the selling price for the office equipment?

> What is the purpose of the statement of cash flows?

> What are some limitations of the earnings per share figure?

> Which ratios are used to measure long-term debt-paying ability? How is each calculated?

> What is the difference between return on investment and return on equity?

> Why are absolute amounts of limited use when comparing companies?

> What is the difference between the current ratio and the quick ratio? What does each measure?

> What is the significance of inventory turnover, and how is it calculated?

> What is apparent from a horizontal presentation of financial statement information? A vertical presentation?

> What do the terms liquidity and solvency mean?

> Magnificent Modems Inc. (MMI) has several capital investment opportunities. The term, expected annual cash inflows, and the cost of each opportunity are outlined in the following table. MMI has established a desired rate of return of 16 percent for these

> How do accounting principles affect financial statement analysis?

> What environmental factors must be considered in analyzing companies?

> What is the price-earnings ratio? Explain the difference between it and the dividend yield.

> What is information overload?

> What is the formula for calculating return on investment (ROI)?

> Why are ratios and trends used in financial analysis?

> How is indirect labor recorded in ledger accounts? How is this labor eventually assigned to the items produced in a job-order costing system?

> In a job-order costing system, what are the Work in Process Inventory subsidiary records called? What information is included in these subsidiary records?

> How do source documents help accountants operate a costing system?

> Which system, a job-order or a process costing system, requires more documentation?

> Assume Magnificent Modems Inc. (MMI) is a division of Gilmore Business Products (GBP). GBP uses ROI as the primary measure of managerial performance. GBP has a desired return on investment (ROI) of 3 percent. The company has $100,000 of investment funds

> Ludwig Company, which normally operates a process costing system to account for the cost of the computers that it produces, has received a special order from a corporate client to produce and sell 5,000 computers. Can Ludwig use a job-order costing syste

> How is the unit cost of a product determined in a process costing system?

> Why do both job-order and process costing require some form of cost averaging?

> To what types of products is a process costing system best suited? Provide examples.

> The finishing department is the last of four sequential production departments for Kowalski Graphics Inc. The company’s other production departments are design, layout, and printing. The finishing department incurred the following costs in March Year 1:

> In a process costing system, what does the term transferred-in costs mean? How is the amount of transferred-in costs determined?

> What is the purpose of each of the three primary steps in a process costing system? Describe each.

> What is the weighted average method of determining equivalent units? Why is it used? What are its weaknesses?

> Bindon Furniture Manufacturing has completed its monthly inventory count for dining room chairs and recorded the following information for ending inventory: 600 units 100 percent complete, 300 units 60 percent complete, and 100 units 20 percent complete.

> The president of Videl Corporation tells you that her company has a difficult time determining the cost per unit of product that it makes. It seems that some units are always partially complete. Counting these units as complete understates the cost per u

> The management of Magnificent Modems Inc. (MMI) is uncertain as to the volume of sales that will exist in Year 1. The president of the company asked the chief accountant to prepare flexible budget income statements assuming that sales activity amounts to

> Use the June 30, 2020 Form 10-K for Microsoft Corporation to complete the requirements below. To obtain the Form 10-K, you can use the EDGAR system (see Appendix A at the back of this text for instructions), or it can be found under “Investors” on the co

> The following information was taken from GoPro, Inc.'s SEC filings. Table Summary: A table shows 3 columns. Columns 1 has entries. Column 2 has the fiscal year ended. Column 2 is divided into December 31, 2019 and December 31, 2018 Required 1. Explain wh

> Although Zhang Juanjuan won the gold medal in 2008, she did not perform extraordinarily well in the seeding round. How consistent are archers? The seeding round for the women is reported in two halves (1st half and 2nd half in the data file). Are the sco

> In the final round of competition, archers shoot only 12 arrows. Is it likely that an Olympic archer may make no X shots at all? Explain your reasoning. For seeding purposes (that is, to set up the final elimination round matches), the total score on the

> Here are summary statistics on X hits for each of the 64 female archers in the 2008 Olympics: 1. Construct a confidence interval for the proportion of arrows that hit the X circle. Write out your calculation; that is, don’t just report

> For each of the following descriptions, select the letter of the inference method you would use. (It is possible for a method to be used more than once or not at all.) 1. Student t for a mean 2. one-proportion z 3. χ2 goodness-of-fit 4. two-proportion z

> But maybe the BMIs of all the participants changed during the four-week period. We can calculate the change in BMI for each participant in the study, and then compare the mean change for the 41 maids in the informed group with the mean change for the 34

> What conclusion can you draw from the test in Exercise 10? 1. The maids lost weight, on average. 2. The mean BMI for the informed maids changed during the study. 3. The mean difference in BMI was not zero for the maids who were informed that their work q

> The researcher was concerned about whether each maid BMI changed over the four-week study. Here are the results of a test performed using technology: Mean of Paired Differences=0.2068t-Statistic=3.853 w/72 dfP=0.0003 Using the proper notation, how would

> Now let consider only the maids who were informed. Here is a display of their body mass index (BMI), a measure of body fat, at the start (BMI) and at the end (BMI2) of the study. Which of these is the best comment to make about this display? 1. This is n

> Which type of study is this? 1. A prospective observational study because it followed the maids for four weeks. 2. A retrospective observational study because at the end of four weeks, the researcher had to look back at the original measurements. 3. A su

> Consider the relationship between the life expectancy (in years) and the illiteracy rate (per hundred people) in the 50 U.S. states plus Washington, DC. A linear model is run and the output is presented here: Residual standard deviation: 1.097 on 48 degr

> Examine the table about ethnicity and acceptance for the Houston Independent School District magnet schools program, shown in Exercise 35. Does it appear that the admissions decisions are made independent of the applicant ethnicity? Explain.

> The following table summarizes 1529 films from 2014 and 2015 that have been classified into a genre and have a MPAA rating. (Data from Movies 06-15) 1. What percent of these films were rated R? 2. What percent of these films were R-rated comedies? 3. Wha

> During contract negotiations, a company seeks to change the number of sick days employees may take, saying that the annual average is 7 days of absence per employee. The union negotiators counter that the average employee misses only 3 days of work each

> A clerk entering salary data into a company spreadsheet accidentally put an extra “0” in the boss salary, listing it as $2,000,000 instead of $200,000. Explain how this error will affect these summary statistics for the company payroll: 1. Measures o

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