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financial accounting for decision makers

Questions and Answers of Financial Accounting For Decision Makers

Determining Cost of Goods Sold Fast Company reported an inventory turnover ratio of 15.6 for the year based on average inventory. It had $240,000 of inventory at the beginning of the year and
Gross Profit Rinser Corporation reported total sales of $540,000 for the current period. Rinser had $95,000 of inventory on hand at the start of the period and $125,000 at the end of the period. A
Computation of Beginning Inventory Sorter Company recorded the following journal entries during 2001:If the inventory reported at December 31, 2001, was $41,000, what was the balance in inventory
Income Statement Belware Company reported the following account balances at December 31, 2000:Prepare an income statement for Belware Company for 2000 that includes a computation of cost of goods
Gross Profit Zone Company sells radar ranges purchased from suppliers in Europe. Zone incurred the following costs associated with acquiring and selling inventory in 2000:During the year, Zone
Inventory Turnover Lower Company and Master Corporation reported the following information for the current year:a. Explain why companies that use specific identification in assigning costs to
Inventory Turnover Ratios The inventory turnover ratios for Ronto Manufacturing, Star Jewelers, and Kelty Food Marts, are 4.5, 1.2, and 12.3, respectively.a. How is the inventory turnover ratio
Lower of Cost or Market Brandise Company manufactures electric motors for use in household appliances. At the end of the year, Brandise held 200 motors that it had produced for a company that is now
Lower-of-Cost-or-Market Glenn Corporation recognized a $17,000 loss on the decline in value of its inventory at December 31, 2001. During 2001, Glenn Corporation purchased inventory costing $374,000
Inventory Write-down Belt Company reported inventory of $34,000 on October 1, 2001, and purchased$174,000 of inventory on account during the month. Cost of goods sold for October was $153,000. In
Inventory Valuation Import Co. purchases handmade clocks from around the world for sale in the United States. According to its records, Import Co. had the following purchases and sales of clocks in
FIFO Inventory Totals Rust Company made the following inventory purchases during the month of April:Rust had 20 units of inventory on hand at April | at a cost of $12 each. Ending inventory reported
LIFO Inventory Totals Trevor Company made the following inventory purchases during the month of July:Trevor Company had 10 units of inventory on hand at July 1 at a cost of $30 each. At July 31,
Inventory Cost Flows—FIFO Crossties Company uses the FIFO cost flow assumption to determine its cost of goods sold. During the first quarter of 2001, Crossties accumulated the following inventory
Inventory Cost Flows—LIFO Growtop Company increased the balance of its inventory of rooftop miniature greenhouses from 200 units at a total cost of $30,000 on April 1 to 250 units on April 30.
Inventory Cost Flows—Average Cost On January 1, 2001, the Pocket Phone Corporation had 1,500 cell phones in inventory at an average cost of $27. During 2001, total sales of phones was $210,000 and
Inventory Cost Flow Assumptions The Comfort Zone Bed Company started its business on January 1, 2000, with an inventory of 40 beds purchased for $80 each. During the first six months of operations
Choice of Inventory Costing Methods Best Co.recorded the following inventory transactions during 2001:a. Calculate cost of goods sold and gross profit for Best Co.for 2001 assuming Best uses a
Perpetual Inventory System On January 10, Pastel Corp. purchased inventory for $240,000 and paid freight charges of $30,000 to acquire 9,000 units of inventory. On January 18, Pastel sold on credit
Periodic and Perpetual Inventory Systems On November |, Howard Retailers had in inventory 1,000 toasters that had been purchased for $6 each. On November 10, Howard Retailers purchased 10,000 new
Inventery Transactions Martie Company had a beginning inventory of 100 units with a cost of $17 each. During May, the company engaged in the following transactions:Martie Company uses a perpetual
Recording Inventory Transactions Prepare journal entries to record all of the transactions listed in E9-36. Assume Martie Company uses a perpetual inventory system and assigns inventory costs on a
Inventory Revaluation Kim Corporation carries a number of different types of widgets. At the end of 2000, the chief financial officer of Kim Corporation noted that the international price of widgets
Lower of Cost or Market Taylor Department Stores has just finished counting its inventory at the end of the year. After carefully compiling the results and gathering other data, the company
Alternative Inventory Systems Uppercut Corporation purchases boxing gloves and markets them to local YMCAs and gymnasiums. Uppercut had on hand at the beginning of April an inventory of 50 units,
Manufacturing Inventories Oddsen Ends Manufacturing Company started business at the end of May by renting a factory building for $3,000 per month and renting all of its equipment for $7,000 per
Inventory Turnover Field Company reported total inventory at January 1 and December 31, 2000, of$200,000 and $160,000, respectively. Cost of goods sold for 2000 was $470,000. Field’s nearest
Perpetual Inventory Methods Clifton Enterprises uses a perpetual inventory system under which inventory costs and cost of goods sold are recomputed after each inventory transaction. During March, the
Inventory Valuation Turnbell Manufacturing held no inventory at the beginning of March. Inventory purchases by the company during March were as follows:Turnbell uses a periodic inventory system. At
Cost of Goods Manufactured and Sold Torid Manufacturing Company produces heating equipment that is used by other companies in their manufacturing operations.Torid’s accounting department provided
Manufacturing Inventories Bronze Manufacturing developed patents on several information transmission relays and has been producing and selling the relays for the past six years. At the end of 2000,
Financial Reporting Measures Tripod Industries uses the last-in, first-out inventory costing method in accounting for its purchases of cameras and film. On September 1, Tripod had 300 packages of
Inventory Controls Highland Manufacturing produces overhead conveyer systems and has in inventory at any given time more than $2,000,000 of equipment ready for delivery. Highland stores its inventory
Analyzing Gateway The Gateway financial statements and accompanying notes included in Appendix A provide information that can be used in responding to the following:a. What amount of inventory is
Inventory Problems for General Mills General Mills’s 1994 annual report cited “disappointing” financial results. The poor results were believed to be the result of two major problems in the
Analysis of ADM Archer Daniels Midland Company (ADM) is in the business of procuring, transporting, storing, processing, and merchandising agricultural commodities. The company reported record-high
Team Project: Analyzing Financial Statements* Acquire the financial statements of a large manufacturing _J company, such as General Motors, a large electric or gas util-~ ity company, such as Duke
Inventory Decisions During 2000, the management of Getz Furniture Manufacturing Company decided that too much money was tied up in inventory. Most of Getz’s furniture is manufactured based on
Ethics and the Valuation of Inventory Your company manufactures a line of processed snack foods using a soybean base with a low fat content. The line was very popular until recent publicity that
Distinguish between the terms fixed assets, property, plant & equipment, and noncurrent assets.
For what types of companies would fixed assets be expected to be very important? For what types of companies would fixed assets be expected to be relatively unimportant?
How is the return on assets ratio computed? What information does the ratio provide?
How is the asset turnover ratio computed? Why would a decision maker be interested in this ratio?
How is the margin on sales ratio computed? What information does it provide? How might there be a trade-off between the margin on sales ratio and the asset turnover ratio?
In general terms, what is the total amount recorded as the cost of an operating asset purchased? List some of the elements that might be included in the recorded cost of a purchased operating asset.
If a company purchases an asset on credit, paying the current market rate of interest, explain how the recorded cost of the asset will compare with the amount that would have been recorded if the
How does a company account for the cost of an operating asset subsequent to acquisition? What basic accounting concept is most important in accounting for the costs of operating assets subsequent to
What is depreciation? How is it related to the matching concept?
Explain how depreciation and amortization are related.
What is meant by the salvage value of an asset? How is salvage value used in accounting for depreciable assets?
What is accelerated depreciation? Give an example of an accelerated depreciation method. How does accelerated depreciation differ from straight-line depreciation?
What is activity-based depreciation? How does activity-based depreciation differ from declining-balance depreciation? For what type of assets is activity-based depreciation most likely to be used?
What role does a change in the fair value of a depreciable asset normally play in determining depreciation expense for the year? Discuss why this is the case.
Which depreciation method normally results in the largest amount of depreciation expense being recorded in the first year of asset ownership? Which method normally results in the largest amount of
At what stage in a company’s life will the choice of depreciation method make the greatest difference? Explain why.
What is book value? How is the book value of a depreciable asset determined? How is the book value of an intangible asset determined?
Why do most companies use accelerated depreciation for tax purposes? Does this mean that they should also use accelerated depreciation for financial reporting purposes?Explain.
What is the Modified Accelerated Cost Recovery System? When is depreciation computed using this method? How does this method differ from straight-line depreciation?
From an accounting perspective, what is depletion?How is the amount of depletion normally computed? At what point is depletion recognized as an expense?
What does it mean for the value of an asset to be impaired? What factors might lead to an impairment of value? How, if at all, is the impairment of an asset recognized for financial reporting
What difficulties often are associated with determining the amount of amortization to be recognized on intangible assets?
If equal amounts are paid for a depreciable and an amortizable asset, how will the amounts reported in the balance sheet at the end of the second year of ownership differ for the two assets?
How are research and development costs normally treated for financial reporting purposes? Explain why.
What is goodwill? When and how is goodwill recognized for financial reporting purposes? When, if ever, is goodwill recognized as an expense?
What reasons might a company have for leasing rather than purchasing assets?
How is the substance of an operating lease different from that of a capital lease? Which type of lease is most similar to purchasing an asset?
What amount(s) are recognized as expense each period under an operating lease?
Understanding Accounting Information 393 What balance sheet elements are different when a lease is treated as a capital lease rather than an operating lease? Why might a company wish to record a
In general, when should a lease be capitalized?
Understanding Operating Assets UN You have been . asked to evaluate two companies and have acquired the following information:. Compute the fixed asset turnover ratios (sales/fixed assets)and total
Accounting and Reporting for Operating Assets Panther Chemical Company is considering building a new chemical plant and is negotiating with Sundrenched Orchards Corporation to purchase the land it
Allocating the Cost of Operating Assets Brunwist, Inc., a holding company with operating divisions in significantly different types of businesses, is reviewing the depreciation methods used by its
Intangible Assets Scenter Company is considering purchasing the net assets of Ripple Corporation. Ripple’s reported net assets are as follows:Ripple’s fixed assets are depreciated on a
Nonfinancial Asset Disclosures You are considering investing in Solid Corporation. The company was established 3 years ago and its sales and net income have expanded very rapidly. Solid Corporation
Financing Asset Acquisitions Amber Corporation wishes to acquire a fleet of new delivery trucks. Amber must choose between a leasing agreement that will be classified as an operating lease and
Multiple Choice: Accounting for Tangible Assets Select the correct answer for each of the following.1. Straight-line depreciation is used for reporting purposes by many companies because:a. It is
Multiple Choice: Noncurrent Assets Select the correct answer for each of the following.1. Companies often are reluctant to record the costs of intangible assets as assets because:a. Outlays for
Multiple Choice: Valuing Noncurrent Assets Select the correct answer for each of the following.The cost of a newly purchased truck subject to rapid obsolescence should be allocated to:a. Depletion
Multiple Choice: Leases Select the correct answer for each of the following.1. A lease is considered a capital lease if:a. The lease is less than one year in length.b. The risks and rewards of
Determining Asset Cost Growth Company decided to expand its production facilities by adding an addition to its factory and acquiring additional equipment. The following occurred during the year:a.
Determining Asset Cost Welborne Corporation incurred the following costs of opening a new production area in its main factory building:a. Compute the amount that should be included as equipment
Asset Similarity Kline Corporation rents a delivery truck on January 1, 2001, for one year, paying the rent of$6,000 in advance. On the same day, Kline purchases and installs a refrigeration unit on
Depreciation Expense Polar Corporation purchased a building with an expected useful life of 30 years for$300,000 on January 1, 2000. The building is expected to have a residual value of $60,000.a.
Depreciation Methods Early in 2000, Cycle Corporation paid $180,000 to purchase equipment with an expected life of 4 years. Estimated salvage value of the equipment is $10,000. The machine is
Depreciation of Equipment Fiddle Company purchased equipment for $270,000. Fiddle expects to use the equipment for six years and to be able to sell it for $30,000 at the end of that period. If Fiddle
Straight-line Depreciation Terrace Corporation purchased used bulldozers and other earth-moving equipment with an expected useful life of five years for $1,200,000. Terrace expects to be able to sell
Double-Declining-Balance Depreciation Todd Company purchased a building with an expected life of twenty years by issuing common stock with a par value of$600,000 and a market value of $3,000,000.
Accelerated Depreciation Amalgamated Health Spas purchased treadmills and other exercise equipment for$800,000. The equipment is expected to be used for eight years and is depreciated using
Activity-Based Depreciation Row Manufacturing purchased production equipment for $450,000, which it expects to use for a total of 8,000 hours during the next five years. It expects to be able to sell
Activity-Based Depreciation Extruded Molding Company uses special molds in producing high-quality window awnings. Each mold can be used to produce 3,000 awnings before it must be scrapped. Extruded
Determining Tax Savings The president of Southeast Company anticipates rapid expansion in business in each of the next several years and is interested in reducing tax payments in 2000 and 2001 as
Depletion Oozzy Oil Company paid $35,000,000 to acquire an oil well containing an estimated 7 million barrels of crude oil. Oozzy immediately invested an additional$1,400,000 preparing the well for
Depletion Amounts Salty Corporation purchased a salt mine in lower Michigan for $90,000,000. Salty expects to recover 2 million tons of salt from the mine. Because of its location, Salty expects to
Sale of Asset On January 1, 1999, Timmins Company paid $400,000 to purchase equipment with an expected life of five years and no estimated salvage value. Due to a major flood, Timmins Company was
Sale of Depreciable Asset Sunsweet Corporation purchased a building on January 1, 1991, for $900,000. It sold the building on January 1, 2000, and made the following journal entry:Sunsweet used
Depletion Costs Diggers, Inc., opened a new strip coal mine in early 2001. The company incurred the following costs during the year:The company anticipates selling 100,000 tons of coal from the mine
Goodwill Bristol Company recently purchased General Enterprises to expand its dealer network to the west coast. Just before the acquisition, the following dollar amounts were reported by the two
Amortizing Goodwill Barley Brewery purchased the assets of Fox Grain Company for $950,000. Just prior to the purchase, Fox used its available cash to pay off all its liabilities. The book value of
Amortization of Intangibles At January 1, 2001, Film Corporation reported the following balance sheet amounts:Buildings and equipment have been depreciated for four years on a straight-line basis and
Amortization of Intangibles Vinay Company purchases several intangible assets, as follows:In addition to the purchase cost of each asset, legal fees associated with the acquisition of the license are

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