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survey of accounting

Questions and Answers of Survey of Accounting

=+The following operating data (in thousands) were adapted from the 2006 SEC 10-K filings of Walgreen and CVS:_ _CVS_ Walgreen 2006 2005 2006 2005 Accounts receivable $2,651,700 $2,080,700 $2,062,700
=+1. Using the preceding data, adjust the operating income for CVS and Walgreen to an adjusted cash basis. For 2006, the operating income for CVS was $1,368,900 and for Walgreens it was $1,750,600
=+A3-5 Analysis ofincome and cash flows
=+2. Compute the net difference between the operating income under the accrual and cash bases.
=+3. Express the net difference in (2) as a percent of operating income under the accrual basis.
=+4. Which company s operating income, CVS s or Walgreens, is closer to the cash basis?
=+5. Do you think most analysts focus on operating income or net income in assessing the long¬term profitability of a company? Explain.
=+The following data (in millions) for 2006, 2005, and 2004 were taken from 10-K filings with the Securities and Exchange Commission:Company A Revenues Operating income Net income Net cash flows from
=+Revenues Operating income Net income Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities Total assets Company D Revenues
=+1. Match each ofthe following companies with the data for Company A, B, C, or D:Amazon.com Coca-Cola Inc.Delta Air Lines Kroger
=+2. Explain the logic underlying your matches.
What is U.S. GAAP? What is IFRS?
What is a capital investment? How does it differ from an investment in stocks or bonds?
What is a postaudit? How is it useful in capital budgeting?
How do capital investments affect profi tability?
What are the advantages and disadvantages associated with the unadjusted rate of return method for evaluating capital investments?
“The payback method cannot be used if the cash infl ows occur in unequal patterns.”Do you agree or disagree? Explain.
“I always go for the investment with the shortest payback period.” Is this a sound strategy? Why or why not?
What typical cash infl ow and outfl ow items are associated with capital investments?
What is the relationship between desired rate of return and internal rate of return?
Paul Henderson is a manager for Spark Company. He tells you that his company always maximizes profi tability by accepting the investment opportunity with the highest internal rate of return. Explain
Which is the best capital investment evaluation technique for ranking investment opportunities?
Does the net present value method provide a measure of the rate of return on capital investments?
What criteria determine whether a project is acceptable under the net present value method?
Two investment opportunities have positive net present values. Investment A’s net present value amounts to $40,000 while B’s is only $30,000. Does this mean that A is the better investment
Maria Espinosa borrowed $15,000 from the bank and agreed to repay the loan at 8 percent annual interest over four years, making payments of $4,529 per year.Because part of the bank’s payment from
Receiving $100,000 per year for fi ve years is equivalent to investing what amount today at 14 percent? Provide a mathematical formula to solve this problem, assuming use of a present value annuity
How can present value “what-if ” analysis be enhanced by using software programs?
Defi ne the term annuity. What is one example of an annuity receipt?
Why are present value tables frequently used to convert future values to present values?
If you wanted to have $500,000 one year from today and desired to earn a 10 percent return, what amount would you need to invest today? Which amount has more value, the amount today or the $500,000 a
How does a company establish its minimum acceptable rate of return on investments?
Defi ne the term return on investment. How is the return normally expressed? Give an example of a capital investment return.
“A dollar today is worth more than a dollar in the future.” “The present value of a future dollar is worth less than one dollar.”Are these two statements synonymous?Explain.
What are three reasons that cash is worth more today than cash to be received in the future?
Pam Kelly says she has no faith in budgets.Her company, Kelly Manufacturing Corporation, spent thousands of dollars to install a sophisticated budget system.One year later the company’s expenses
Is it true that the manager with the highest residual income is always the best performer?
How can a residual income approach to performance evaluation reduce the likelihood of suboptimization?
What three ways can a manager increase the return on investment?
What two factors affect the computation of return on investment?
Carmen Douglas claims that her company’s performance evaluation system is unfair.Her company uses return on investment(ROI) to evaluate performance. Ms.Douglas says that even though her ROI is
How do variance reports promote the management by exception doctrine?
Minnie Divers, the manager of the marketing department for one of the industry’s leading retail businesses, has been notifi ed by the accounting department that her department experienced an
How are fl exible budget variances determined?What causes these variances?
With respect to fi xed costs, what are the consequences of the actual volume of activity exceeding the planned volume?
What factors could lead to an increase in sales revenues that would not merit congratulations to the marketing manager?
When would variable cost volume variances be expected to be unfavorable? How should unfavorable variable cost volume variances be interpreted?
Joan Mason, the marketing manager for a large manufacturing company, believes her unfavorable sales volume variance is the responsibility of the production department.What production circumstances
When are sales and cost variances favorable and unfavorable?
When the operating costs for Bill Smith’s production department were released, he was sure that he would be getting a raise. His costs were $20,000 less than the planned cost in the master budget.
What is the difference between a static budget and a fl exible budget? When is each used?
What are the three types of responsibility centers? Explain how each differs from the others.
What is a responsibility center?
What is a certifi ed check?
Defi ne the term internal control .
Chris Sutter, the production manager of Satellite Computers, insists that the DVD drives used in the company’s upper-end computers be outsourced because they can be purchased from a supplier at a
Are all fi xed costs unavoidable?
Which method might be preferable for fi nancial statements? For income tax reporting?Explain.
Refer to Questions 35 and
Assume that Key Co. purchased 1,500 units of merchandise in its second year of operation for $27 per unit. Its beginning inventory was determined in Question 35.Assuming that 1,500 units are sold,
Defi ne the following terms:a. Makerb. Payeec. Principald. Intereste. Maturity datef. Collateral
Why does the periodic inventory system impose a major disadvantage for management in accounting for lost, stolen, or damaged goods?
Explain how the periodic inventory system works. What are some advantages of using the periodic inventory system? What are some disadvantages of using the periodic inventory system? Is it necessary
What is the purpose of preparing a schedule of cost of goods sold?
What is the advantage of using common size income statements to present fi nancial information for several accounting periods?
What is the difference between a multistep income statement and a single-step income statement?
Explain the difference between gross margin and a gain.
Explain the difference between purchase returns and sales returns. How do purchase returns affect the fi nancial statements of both buyer and seller? How do sales returns affect the financial
Ball Co. purchased inventory with a list price of $4,000 with the terms 2/10, n/30.What amount will be added to the Merchandise Inventory account?
Defi ne transportation-out. Is it a product cost or a period cost for the seller?
What is the purpose of giving a cash discount to charge customers?
Eastern Discount Stores incurred a $5,000 cash cost. How does the accounting for this cost differ if the cash were paid for inventory versus commissions to sales personnel?
Dyer Department Store purchased goods with the terms 2/10, n/30. What do these terms mean?
Why would a seller grant an allowance to a buyer of the his merchandise?
Quality Cellular Co. paid $80 for freight on merchandise that it had purchased for resale to customers (transportation-in) and paid $135 for freight on merchandise delivered to customers
Defi ne transportation-in. Is it a product or a period cost?
If goods are shipped FOB shipping point, which party (buyer or seller) is responsible for the shipping costs?
Northern Merchandising Company sold inventory that cost $12,000 for $20,000 cash.How does this event affect the accounting equation? What fi nancial statements and accounts are affected? (Assume that
What are the effects of the following types of transactions on the accounting equation?Also identify the fi nancial statements that are affected. (Assume that the perpetual inventory system is
Describe how the perpetual inventory system works. What are some advantages of using the perpetual inventory system? Is it necessary to take a physical inventory when using the perpetual inventory
If PetCo had net sales of $600,000, goods available for sale of $450,000, and cost of goods sold of $375,000, what is its gross margin? What amount of inventory will be shown on its balance sheet?
When are period costs expensed? When are product costs expensed?
What portion of cost of goods available for sale is shown on the balance sheet? What portion is shown on the income statement?
How is the cost of goods available for sale determined?
What is the difference between a product cost and a selling and administrative cost?
Defi ne merchandise inventory. What types of costs are included in the Merchandise Inventory account?
Defi ne the term cost pool. How are cost pools important in allocating costs?
Larry Kwang insists that the costs of his school’s fund-raising project should be determined after the project is complete. He argues that only after the project is complete can its costs be
Respond to the following statement: “The allocation base chosen is unimportant.What is important in product costing is that overhead costs be assigned to production in a specifi c period by an
On January 31, the managers of Integra Inc. seek to determine the cost of producing their product during January for product pricing and control purposes. The company can easily determine the costs
What is the objective of allocating indirect manufacturing overhead costs to the product?
Why are some manufacturing costs not directly traceable to products?
In a manufacturing environment, which costs are direct and which are indirect in product costing?
How is an allocation rate determined?How is an allocation made?
What are the important factors in determining the appropriate cost driver to use in allocating a cost?
Give an example of why the statement, “All direct costs are avoidable,” is incorrect.
Why are the terms direct cost and indirect cost independent of the terms fi xed cost and variable cost? Give an example to illustrate.
What is a direct cost? What criteria are used to determine whether a cost is a direct cost?
If the cost object is a manufactured product, what are the three major cost categories to accumulate?
Why is cost accumulation imprecise?

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