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financial accounting information for decisions

Questions and Answers of Financial Accounting Information For Decisions

Why do you think that different inventory turnovers and significant changes in costs would affect the comparability of the cost of goods sold for two companies?
How might this discussion affect your computation of the inventory turnover ratio?
Why do you think that Wal-Mart uses a January 31 year-end instead of the more commonly used December 3 |?
Do you think that General Motors and Ford would have the same inventory www.gm.com turnover ratio amounts if they were equally efficient? Why or why not?
In Exhibit 19-1 O, did the difference between the cost of goods sold amounts move in the direction (increase or decrease) that you would expect? Why or why not?
Do you consider these two companies to be in the same industry? Have the two companies made different choices for their primary cost flow assumptions? Why do you think the managers made the choices
Explain whether you think it is desirable for a company’s income to be influenced by managers’ choices, rather than just from economic transactions and events.
How do you think conservatism could be unfair to present shareholders?
Whose side do you take on this discussion—the supporters or the critics of the conservatism principle? Explain your position.
Would you prefer that a company report the loss separately from cost of goods sold?Why or why not?
How does a lower beginning inventory result in a lower cost of goods sold?
Would you expect the replacement cost of the inventory to be less than the actual cost of the inventory for a company that uses FIFO? one that uses average cost? one that uses LIFO? Explain why.
Why would a company’s accounting system report a quantity of inventory that differs from the physical count?
Would you expect that, for a typical company, its net cash flow from operating activities would be greater or less than its net income? Explain your answer.
Does this make sense? Why does adding the increase in inventory to cost of goods sold have the same effect as subtracting the increase from net income?
Explain why subtracting the increase in salaries payable from salaries expense is the same as adding the increase to net income.
How would the company report on its cash flow statement an increase in accounts re- ceivable during the year? a decrease in inventory? a loss on a sale of a machine? Ex- plain each of your answers.
Ifa company uses the indirect method in its cash flow statement, would you be able to compute its operating cash flows under the direct method?
What type of company would you expect not to generate sufficient cash from its op- erating activities to pay its normal recurring bills?
What other items might make it impossible to compute separate amounts for payments to suppliers and payments to employees?
How does a company determine the costs and amounts of inventory that it includes in the inventory amount reported on its balance sheet?
What three types of assets may a company include in its inventory? TYK-1
What is the difference between merchandise inventory and finished goods inventory? TYK-1
What is the difference between the perpetual and the periodic inventory methods? TYK-1
Explain which costs are included in cost of goods sold and ending inventory under the (a) FIFO, (b) average cost, and (c) LIFO cost flow assumptions. TYK-1
Explain the impact of FIFO and LIFO ona company’s income statement and balance sheet if costs are rising. TYK-1
Where does a company report its ending inventory and its inventory cost flow assump- tion in its financial statements? TYK-1
Explain the difference between intracompany and intercompany analysis. TYK-1
Explain what is meant by a “LIFO liquidation profit.” TYK-1
Explain what is meant by the lower-of-cost-or-market (LCM) method. TYK-1
Under the LCM method, what does “market value” mean? TYK-1
How does a company use the gross profit method to estimate its ending inventory? TYK-1
How does a company use the retail inventory method to estimate its ending inventory? TYK-1
Explain what is meant by a company’s “operating cycle” and how the cycle affects cash flows related to accounts receivable and accounts payable. TYK-1
How does a company determine its net cash provided by operating activities under the direct method? TYK-1
How does a company determine its net cash provided by operating activities under the indirect method? TYK-1
Identify the steps a company completes under the indirect method to compute its net cash provided by operating activities. TYK-1
The Schulte Tape Company has a beginning inventory for May of $2,500 (250 tapes at$10 each) and makes the following purchases and sales of tapes during May:Ravi D iE UL CNASCS
The Gomez Folding Chair Company has 400 chairs (at $15 each) in its beginning inventory for July. It makes the following purchases and sales of chairs during July:Date Purchases Sales July 6 200
The Russell Video Company had 200 videos in its April | inventory. It uses the perpetual inventory system and made the following purchases and sales of videos during April and May.PROTA eo DOAK NAS
The Caldwell Company had 50 electric motors in its November | inventory. The company uses the perpetual inventory system and made the following purchases and sales of electric motors during November
The Ginther Power Tool Company had 100 air compressors in its January | inventory. It uses the periodic inventory system and made the following purchases of air compressors during January and
The Johnson Watch Company had 300 watches in its July | inventory. The company uses the periodic inventory system and made the following purchases of watches during July and August.July 8 40 watches
The Brabham Kite Company had the following FIFO costs and replacement costs of kites for its ending inventory.Item # Number of Units Unit Cost Unit Replacement Cost a ae UR a ee hp al 804 100 $10 $l
The Seaman Company’s ending inventory of vacuum cleaner parts included the following items:Item # Number of Units Unit Cost (FIFO) Unit Replacement Cost A12B 50 $100 $90 LI5C 150 76 82 P27X 200 60
On March 31, Ireland Peat Company needs to estimate its ending inventory for preparation of its first quarter’s financial statements. The following information is available:BIVETIECU: Vig AMIGA).
On September |,a fire destroyed all but $3,000 of Redster Company's inventory. The following information is available from the company’s accounting records:PV EMME Cry sp AIMS as paves secs tssss
Lotus Tire Company estimates its ending inventory for its quarterly financial statements by using the gross profit method. The following information is available from its accounting records:First
Scheckter Department Store uses the retail inventory method. At the end of the first quarter, the following information is available:Cost Retail Inventory, Jan. | $15,000 $18,000 Purchases 47,000
Burris Department Store uses the retail inventory method. At the end of the first quarter, the following information is available:Cost Retail Inventory, Jan. | $ 5,000 $ 9,000 Purchases 35,000 68,000
The following information is taken from the accounting records of Tilder Company for the current year:Net income, $47,000 Increase in inventory, $4,600 Decrease in accounts receivable, $8,500
In the current year, Faldo Company earned net income of $61,000. Included in the com- putation of net income was $12,500 of depreciation expense and a loss of $4,000 on the sale of land. During the
During the current year, Woods Company earned net income of $56,000. Depreciation expense of $11,000 was included in the computation of net income. Woods’ accounting records show the following
Birkin Company uses the FIFO inventory cost flow assumption. It includes the following amounts in the company’s financial statements:IVER COR year yal, Bi ecsse out t svcses. chess csassscceec Ay
Nike disclosed the following in its 1998 annual report (in millions): www.nike.com Inventory valuation: Inventories are stated at the lower of cost or market. Cost is determined using the last-in,
Coca-Cola disclosed the following in its 1997 annual report:Inventories: Inventories consist primarily of raw materials and supplies and are valued at the lower of cost or market. In general, cost is
Kellogg Company disclosed the following in its 1997 annual report:Inventories: Inventories are valued at the lower of cost (principally average) or market.Inventories: Inventories are valued at the
JCPenney disclosed the following in its "Management's Discussion and Analysis" section of its 1997 annual report: FIFO operating earnings increased to $1,371 million in 1997, up 15.9 per cent
May Department Stores Co. disclosed the following in its 1997 annual report:Earnings before interest and taxes (EBIT) for the past three years were as follows:Increase (dollars in millions) 1997 1996
When Janet Guthrie arrived at her dress shop on the morning of June 15, 2000, she found that thieves had broken in overnight and stolen much of her merchandise. The agent of Alright Insurance Company
Intel disclosed the following selected amounts (in millions) in its 1997 annual report:IO MIRGNGTMIG a ctreernncrcccartmasen Gg tiaaiManieniiessant Kore toreeniacee ce ns neice $25,070 SERS AGS eee
What is a standard cost system? TKY-1
What is the difference between a price standard and a quantity standard? TKY-1
How does a company compute the standard cost of an input per unit of output in its manufacturing operations? TKY-1
What costs are included in a direct materials price standard? TKY-1
What amounts are included in a direct materials quantity standard? TKY-1
Distinguish between a direct materials price variance and a direct materials quantity variance. TKY-1
Why is a direct materials price variance usually computed at the time of purchase? TKY-1
How does a company record the purchase of direct materials (on credit) in a standard cost system? TKY-1
How does a company record the use of direct materials in a standard cost system? TKY-1
What does a direct labor price standard include? TKY-1
What amount does a direct labor quantity standard include? ; TKY-1
Distinguish between a direct labor price variance and a direct labor efficiency w” variance. a? TKY-1
How does a company record wages for direct labor in a standard cost system? TKY-1
What are the price standards for factory overhead? TKY-1
What is the quantity standard for factory overhead? TKY-1
Distinguish between an overhead budget variance and a fixed overhead volume variance. TKY-1
Explain how a company records its factory overhead incurred and factory overhead applied. TKY-1
What is the balance in a company’s factory overhead account at the end of the period, and how does the company remove this balance? TKY-1
What rules do management accountants follow to make variance computations more helpful? TKY-1
Why is it useful for managers to have a “breakdown” of the standard cost variances for individual operations or departments? TKY-1
Should managers investigate all variances to identify the problems causing them? Briefly discuss. TKY-1
The Morgan Company plans to purchase material X in 5-gallon drums (1,000 at a time)at an invoice price of $21 per drum and to take a 2% cash discount by paying for the material within 10 days.
The Melton Company has set the standard direct materials cost for one of its products at $12 per unit (4 pounds per unit @ $3 per pound). During March, Melton purchased 4,100 pounds of this direct
Playtime Products makes large dollhouses. The standard cost of the carpet used for their construction is $8.40 per dollhouse (6 square feet @ $1.40 per square foot). During September, Playtime paid
Foster Furniture uses a standard cost system. One model of sofa has a standard direct labor cost of $111 (10 hours per sofa @ $11.10 per hour). During the first week of October, Foster manufactured
The Morristown Manufacturing Company incurred $60,500 of direct labor cost in its machine shop during the month of June. This cost was the result of 5,910 direct labor hours worked to produce 2,000
The SpitShine Company produced 5,400 gallons of brass polish in January. The direct labor quantity standard for this polish is 0.2 hours per gallon, and the direct labor price standard is $12 per
|The Roberts Company produces product X, which is in high demand. Mr. Roberts, the owner, believes that three or four times as many units could be sold as his five employees are capable of making.
Refer to 17.28. At the beginning of this year the Roberts Company leased a new machine—for $4,500 per year—that would allow production of a unit of product X out of | pound of direct materials in
Hugland Company budgets its factory overhead on the basis of a normal activity of 100,000 standard direct labor hours (DLH) per year. It estimates that its variable factory overhead is $4 per DLH and
The total annual factory overhead budget of the Reynolds Company is given by the fol- lowing cost equation:Total overhead cost budgeted = $78,000 + $3.50X where X = standard direct labor hours The
The Brimestone Company produces several products. The company’s factory overhead rates were determined in 2000 at its normal activity of 90,000 units (180,000 standard direct labor hours budgeted)
The Glover Company produces Product A, for which the following standards have been set:Direct materials (3 pounds @ $2.50 per pound)Direct labor (1 hour @ $12.20 per Hour)
The Pierless Paint Company produces an exterior house paint known as Pierpont 163. Two direct materials are combined in the manufacture of this paint: pier and pont. Pierpont 163 is sold in |-gallon
= The Hammond Manufacturing Company produces Yagis. Standard costs per Yagi are as follows:Standard Cost per Yagi Direct materials:Aluminum tubing (144 feet @ $0.40 per foot)
The Oldtown Clock Company makes walnut veneer clocks that look like antiques. A new clock to be manufactured requires a veneer strip 6 inches wide and 18 inches long.Oldtown’s supplier of walnut
The Ranger Company produces Ringos. The president of the company has recently been puzzled by apparent problems causing direct labor price variances that she cannot identify. You are asked to help
The Cozyhome Company makes doghouses. These houses are built in two departments. Department A cuts ¥/,-inch plywood into two shapes (| and 2) and paints the pieces with quick-drying paint. Doghouses
And Roy, you know as well as anyone else that while our sales volume is down, we've got to cut costs. Your department's unit costs are up 2% this June. We just can’t have any more of this or I'll

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