Questions and Answers of Financial And Managerial Accounting The Basis For Business Decisions

Atwood Hardware has three operating departments. In its departmental income statement, building occupancy expenses are allocated among departments on the basis of sales. Explain why you do or do not
After examining an income statement showing net income by departments, James Wood, the manager of one department, complains that the amount of income taxes allocated to his department is greater than
What is meant by the term contribution to indirect expenses? Explain why man¬agement may find information about the contribution to overhead of each de¬partment more useful than departmental net
Briefly describe the type of information that management should obtain from a branch accounting system. LO5
Differentiate between a centralized and a decentralized accounting system for branch operations. LO5
Describe the nature of the Home Office account which appears in the records of the branch and the Branch account which appears in the records of the home office. Why are these two accounts referred
What is the reason for preparing working papers for combined statements of the home office and branch? LO5
Explain how the content of the income statement of a manufacturing company differs from the items usually found in the income statement of a merchandising company. LO3
A manufacturing company has more than one kind of inventory. Do all the types of inventories of a manufacturing company appear on its income statement?Explain. LO3
What are the three major components of the cost of manufactured goods? LO3
A manufacturing firm has three inventory control accounts. Name each of the accounts, and describe briefly what the balance in each at the end of any ac¬counting period represents. LO3
Into which of the three elements of manufacturing cost would each of the follow¬ing be classified? LO3 a Wages of assembly-line workers who package frozen food b Briar used in the manufacture of
During a given period the cost of raw materials used by a manufacturing firm was$22,000 and the raw material inventory decreased by $4,500. What was the deliv¬ered cost of raw materials purchased?
Explain the distinction between product costs and period costs. Why is this dis¬tinction important? LO3
Indicate whether each of the following should be considered a product cost or a period cost: LO3 a Depreciation on raw materials warehouse b Salaries of office workers in credit department c Cost of
Distinguish between total manufacturing costs and the cost of finished goods manufactured. LO3
What is meant by the term overhead application rate? LO3
Explain how the cost of the ending inventory of goods in process is determined at the end of the period under the periodic inventory system. LO3
What does the balance in the Manufacturing Summary account represent, be¬fore the account is closed? LO3
What are the major shortcomings of the periodic inventory system when used by a manufacturing company? LO3
During the current year, Green Bay Company made all sales of merchandise at prices in excess of cost. Will the business necessarily report a net income for the year? Explain. LO3
Hi-Rise Company during its first year of operation had cost of goods sold of$90,000 and a gross profit equal to 40% of sales. What was the dollar amount of sales for the year? LO3
In accounting for an unincorporated business, is it customary to include a salary to the owner as an expense of the business if he or she works full time for the business? Why or why not? LO3
In appraising the adequacy of the net income of a small business in which the owner works on a full-time basis, the net income may be regarded as including three separate elements. What are these
Which of the following expenditures by Southside Drugstore should be recorded by a debit to the Purchases account? LO3 a Purchase of a new delivery truck b Purchase of a three-year insurance policy c
Supply the proper terms to complete the following statements: LO3 a Net sales — cost of goods sold = _L b Beginning inventory + purchases — purchase returns and allowances —purchase discounts +
During the current year, Davis Corporation purchased merchandise costing$200,000. State the cost of goods sold under each of the following alternative assumptions: LO3 a No beginning inventory;
Zenith Company uses the periodic inventory system and maintains its account¬ing records on a calendar-year basis. Does the beginning or the ending inventory figure appear in the trial balance
Compute the amount of cost of goods sold, given the following account balances:beginning inventory $40,000, purchases $84,000, purchase returns and allowances$4,500, purchase discounts $1,500,
Explain the terms current assets, current liabilities, and current ratio. LO3
The Riblet Company has a current ratio of 3 to 1 and working capital of $60,000.What are the amounts of current assets and current liabilities? LO3
Why is it advisable to use a Purchase Returns and Allowances account when a similar end result may be achieved by crediting the Purchases account when goods purchased are returned to the
Which party (seller or buyer) bears the transportation costs when the terms of a merchandise sale are (a) F.O.B. shipping point; (b) F.O.B. destination? LO3
Where does the account Transportation-in appear in the financial statements? LO3
Is the normal balance of the Sales Returns and Allowances account a debit or a credit? Is the normal balance of the Purchase Returns and Allowances account a debit or a credit? LO3
In which columns of the work sheet for a merchandising company does the end¬ing inventory appear? LO3
State briefly the difference between the perpetual inventory system and the peri¬odic inventory system. LO3
If cost of goods sold amounts to 65% of net sales of a merchandising business and net income amounts to 5% of net sales, what percentage of net sales is repre¬sented by operating expenses? What
An invoice dated October 21 bears credit terms of 2/10, n/30. What is the last day of the discount period? The last day of the credit period? Another invoice dated October 21 bears credit terms of 10
A cash discount affects both seller and buyer. What term describes a cash dis¬count from the viewpoint of the seller? From the viewpoint of the buyer? LO3
What single item on the income statement will, if added to the ending inventory, be equal to the cost of goods available for sale? LO3
When the periodic inventory system is in use, how is the amount of inventory determined at the end of the period? LO3
What is the purpose of a closing entry consisting of a debit to the Income Sum¬mary account and a credit to the Inventory account? LO3
Describe a condensed income statement and indicate its advantages and possible shortcomings. LO3
What is the purpose of a system of internal control? List four specific objectives which the measures included in a system of internal control are designed to achieve. LO5
Criticize the following statement: “Internal control may be defined as all those measures which a business uses to prevent fraud.” LO5
Ross Corporation is a medium-sized business with 20 office employees. State two or three guidelines or principles which should be followed in assigning duties to the various employees so that
State a general principle to be observed in assigning duties among employees with respect to the purchase of merchandise so that strong internal control will be achieved. LO5
Suggest a control device to protect a business against the loss or nondelivery of invoices, purchase orders, and other documents which are routed from one de¬partment to another. LO5
Criticize the following statement: “In our company we get things done by requir¬ing that a person who initiates a transaction follow it through in all particulars.For example, an employee who
If a company obtains a fidelity bond protecting it against loss from dishonest actions on the part of any of its officers or employees, would it still be necessary for the company to maintain a
What is the principal difference between an audit by independent public ac¬countants and the work done by internal auditors? LO5
Explain why the operations and custodianship functions should be separate from the accounting function. LO5
A system of internal control is often said to include two major types of controls:administrative controls and accounting controls. Explain the nature of each group and give an example of each. LO5
A CPA makes a study and evaluation of internal controls as part of an annual audit. Is the CPA equally concerned with administrative controls and accounting controls? Explain. LO5
Company A sells merchandise to B on credit and two days later agrees that B can return a portion of the merchandise. B does so. What document should Company A issue to record the return? What
Blair Manufacturing Company sells appliances on both a wholesale and a retail basis and publishes an annual catalog listing products at retail prices. At what price should the sale be recorded when
A company which has received a shipment of merchandise and a related invoice from the supplier sometimes finds it necessary to issue a debit memorandum.Describe a situation that would justify such
Distinguish between a trade discount and a cash discount. LO5
What accounting entry, if any, is required on the part of the company issuing a purchase order? On the part of the company receiving the purchase order? LO5
Name three documents (business papers) which are needed by the accounting department to verify that a purchase of merchandise has occurred and that payment of the related liability should be
Are publicly owned corporations which do business solely within the continental United States affected by the Foreign Corrupt Practices Act of 1977? Explain. LO5
What advantages are offered by the use of special journals? LO1
The column total of one of the four special journals described in this chapter is posted at month-end to two general ledger accounts. One of these two accounts is Accounts Payable. What is the name
Pine Hill General Store makes about 500 sales on account each month, using only a two-column general journal to record these transactions. What would be the extent of the work saved by using a sales
When accounts receivable and accounts payable are kept in subsidiary ledgers, will the general ledger continue to be a self-balancing ledger with equal debits and credits? Explain. LO1
Explain how, why, and when the cash receipts journal and cash payments jour¬nal are crossfooted. LO1
During November the sales on credit made by the Hardy Company actually amounted to $41,625, but an error of $1,000 was made in totaling the amount column of the sales journal. When and how will the
Considerable copying work may be performed in preparing a sales invoice, a sales journal, and a receivables ledger. Is this step-by-step sequence, with its related opportunity for errors, a
What are the principal advantages of electronic data processing in the account¬ing department of a company? LO1
In which phases or areas of accounting can EDP equipment be used to advan¬tage? Which phases can most conveniently and advantageously be converted to electronic data processing? LO1
What avenues are open to a small business interested in gaining the efficiencies of electronic data processing, but lacking funds for purchase or rental of a computer and not having employees
Evaluate the following quotation: “The computer will ultimately replace both bookkeepers and accountants and will be able to make many of the decisions now made by top management.” LO1
Distinguish between hardware and software as these terms are used in data processing systems. LO1
Explain the meaning of the term computer program. LO1
What are the principal elements of an electronic data processing system? LO1
Explain the meaning of the term input control and give an example. LO1
Explain the meaning of the term program control and give an example. LO1
Does the expression “efficient management of cash” mean anything more than procedures to prevent losses from fraud or theft? Explain. LO6
If a company has checking accounts in three banks, should it maintain a separate ledger account for each? Should the company’s balance sheet show the amount on deposit in each of the three checking
Mention some principles to be observed by a business in establishing strong internal control over cash receipts. LO6
Explain how internal control over cash transactions is strengthened by compli¬ance with the following rule: “Deposit each day’s cash receipts intact in the bank, and make all disbursements by
List two items often encountered in reconciling a bank account which may cause cash per the bank statement to be larger than the balance of cash shown in the accounts. LO6
In the reconciliation of a bank account, what reconciling items necessitate a journal entry in the depositor’s accounting records? LO6
Pico Stationery Shop has for years maintained a petty cash fund of $75, which is replenished twice a month. LO6 a How many debit entries would you expect to find in the Petty Cash account each year?b
A check for $455 issued in payment of an account payable was erroneously listed in the cash payments journal as $545. The error was discovered early in the following month when the paid check was
It is standard accounting practice to treat as cash all checks received from cus- tomers. When a customer's check is received, recorded, and deposited, but later returned by the bank marked NSF, what
Ringo Store sells only for cash and records all sales on cash registers before delivering merchandise to the customers. On a given day the cash count at the close of business indicated $10.25 less
Classify each of the numbered reconciling items listed below under one of the following headings: (a) an addition to the balance per depositor's records; (b) a deduction from the balance per
Name three internal control practices relating to cash which would be prac¬ticable even in a small business having little opportunity for division of duties. LO6
With respect to a voucher system, what is meant by the terms voucher, voucher register, and check register? LO6
What is the greatest single advantage of the voucher system? LO6
Randall Company uses a voucher system to control its cash disbursements. With respect to a purchase of merchandise, what three documents would need to be examined to verify that the voucher should be
Assume that a company using a general journal, a cash receipts journal, a cash payments journal, a sales journal, and a purchases journal decides to adopt a voucher system. Which of the five journals
pOlna i nJ.a nuary 10 Susan Jones wrote a check for $500 and mailed it to Joe Smith in payment of a debt. On January 25, Smith called and asked to be paid, stating that no check had been received.
In bidding for some surplus property offered at auction by a government agency, the Argus Company on December 28 drew a check for $3,000 and mailed it with the bid. The government agency on January 3
Adams Company determines at year-end that its Allowance for Doubtful Ac¬counts should be increased by $6,500. Give the adjusting entry to carry out this decision. LO9
At the end of its first year in business, Baxter Laboratories had accounts receiva¬ble totaling $148,500. After careful analysis of the individual accounts, the credit manager estimated that
In February of its second year of operations, Baxter Laboratories (Question 3 above) learned of the failure of a customer, Sterling Corporation, which owed Baxter $800. Nothing could be collected.
What is the direct charge-off method of handling credit losses as opposed to the allowance method? What is its principal shortcoming? LO9

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