1.The director of cost management for Odessa
Company uses a statistical control chart to help management determine when to
investigate variances. The critical value is 1 standard deviation. The
company incurred the following direct-labor efficiency variances during the
first six months of the current year.

January

$

500

F

February

1,600

U

March

1,400

U

April

1,800

U

May

2,100

U

June

2,400

U

The standard direct-labor cost
during each of these months was $38,000. The controller has estimated that
the firm’s monthly direct-labor variances have a standard deviation of
$1,900.

2.The following data pertain to Colgate
Palmolive’s liquid filling line during the first 10 months of a particular
year. The standard ratio of direct-labor hours to machine hours is 4:1. The
standard direct-labor rate is $15.98.

Colgate Palmolive: Direct-Labor Efficiency Variance Data*

Units
Produced

Machine
Hours

Standard
Direct-Labor
Hours

Actual
Direct-Labor
Hours

Direct-Labor
Efficiency
Variance

January

50,658

174.5

698.00

392.00

$

4,890

February

32,123

109.3

437.20

232.00

3,279

March

186,079

570.0

2,280.00

1,104.00

18,792

April

214,074

726.4

2,905.60

1,522.75

22,098

May

49,290

169.0

676.00

382.00

4,698

June

83,066

250.0

1,000.00

572.50

6,831

July

36,568

113.0

452.00

301.00

2,413

August

33,843

105.0

420.00

356.50

1,015

September

32,010

105.0

420.00

354.50

1,047

October

28,641

81.0

324.00

194.00

2,077

*Source of data: Alan S. Levitan and Sidney J. Baxendale,
“Analyzing the Labor Efficiency Variance to Signal Process Engineering
Problems,” Journal of Cost Management6, no. 2 (Summer 1992), p.
70.

Required:

1-a.

Which of the following amounts did Colgate Palmolive use in
calculating its standard direct labor hours for the month of January?(Select all that apply.)

Units produced

Machine
hours

Actual
direct-labor hours

Standard
ratio of direct-labor hours to machine hours

1-b.

Which of the following amounts did Colgate Palmolive use in
calculating its direct-labor efficiency variance for the month of January?
(Select all that apply.)

Units produced

Standard
direct-labor hours

Actual
direct-labor hours

Standard
direct-labor rate

2.

Calculate the following amounts.

a.

The standard direct-labor cost for each of the 10 months.(Round intermediate
calculation to 2 decimal places and final answers to nearest whole dollar
amount.)

Standard Direct-Labor Cost

January

February

March

April

May

June

July

August

September

October

b.

For each month, (expression error) percent of the standard
direct-labor cost.(Round your final answers to the nearest whole dollar amount.)

</p> </td> <td></td> </tr> <tr> <td></td> <td> <p/></td> </tr> <tr> <td></td> <td> <table> <tbody> <tr> <td></td> <td> <p><strong>20% of the<br /> Standard Direct-Labor Cost</strong></p> </td> </tr> <tr> <td> <p>January</p> </td> <td></td> </tr> <tr> <td> <p>February</p> </td> <td></td> </tr> <tr> <td> <p>March</p> </td> <td></td> </tr> <tr> <td> <p>April</p> </td> <td></td> </tr> <tr> <td> <p>May</p> </td> <td></td> </tr> <tr> <td> <p>June</p> </td> <td></td> </tr> <tr> <td> <p>July</p> </td> <td></td> </tr> <tr> <td> <p>August</p> </td> <td></td> </tr> <tr> <td> <p>September</p> </td> <td></td> </tr> <tr> <td> <p>October</p> </td> <td></td> </tr> </tbody> </table> </td> <td> <p/></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> </tbody> </table> <p/> <table> <tbody> <tr> <td> <p><strong>3.</strong></p> </td> <td> <p>Suppose management investigates all variances in excess of<br /> (expression error) percent of standard cost. Which months contain a<br /> variance that would be investigated?<strong>(Select all that apply.)</strong></p> </td> </tr> <tr> <td> <p>January</p> </td> <td> <p/></td> </tr> <tr> <td> <p><input/>February</p> </td> <td> <p/></td> </tr> <tr> <td> <p><input/>March</p> </td> <td> <p/></td> </tr> <tr> <td> <p><input/>April</p> </td> <td> <p/></td> </tr> <tr> <td> <p><input/>May</p> </td> <td> <p/></td> </tr> <tr> <td> <p><input/>June</p> </td> <td> <p/></td> </tr> <tr> <td> <p><input/>July</p> </td> <td> <p/></td> </tr> <tr> <td> <p><input/>August</p> </td> <td> <p/></td> </tr> <tr> <td> <p><input/>September</p> </td> <td> <p/></td> </tr> <tr> <td> <p><input/>October</p> </td> <td> <p/></td> </tr> <tr> <td> <p/></td> <td> <p><strong>6.</strong></p> </td> <td> <p>Which of the following could be a reason why the direct-labor<br /> efficiency variances for March, April and June are larger than in the other<br /> months?</p> </td> </tr> <tr> <td> <p/></td> <td> <p/> </td> <td> <p/> </td> </tr> <tr> <td> <p/></td> <td> <p/> </td> <td> <table> <tbody> <tr> <td> <p><input/></p> </td> <td> <p>Production volume was significantly higher.</p> </td> </tr> <tr> <td> <p><input/></p> </td> <td> <p>The standard direct-labor rate was significantly higher.</p> </td> </tr> <tr> <td> <p><input/></p> </td> <td> <p>The actual direct-labor rate was significantly higher.</p> </td> </tr> </tbody> </table> </td> </tr> <tr> <td> <p/></td> <td> <p>3.McKeag Corporation manufactures agricultural<br /> machinery. At a recent staff meeting, the following direct-labor variance<br /> report for the year just ended was presented by the controller.</p> </td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> </tbody> </table> <p></p> <table> <tbody> <tr> <td> <p>MCKEAG CORPORATION<br /> Direct-labor Variance Report</p> </td> </tr> <tr> <td> <p/> </td> <td> <p>Direct-Labor Rate Variance</p> </td> <td> <p>Direct-Labor Efficiency Variance</p> </td> </tr> <tr> <td> <p/> </td> <td> <hr/> <p/> </td> <td> <hr/> <p/> </td> </tr> <tr> <td> <p/> </td> <td> <p>Amount</p> </td> <td> <p>Standard Cost, %</p> </td> <td> <p>Amount</p> </td> <td> <p>Standard Cost, %</p> </td> </tr> <tr> <td> <p> January</p> </td> <td> <p>$</p> </td> <td> <p>1,600</p> </td> <td> <p> F</p> </td> <td> <p/> </td> <td> <p>0.16</p> </td> <td> <p>%</p> </td> <td> <p>$</p> </td> <td> <p>10,000</p> </td> <td> <p> U</p> </td> <td> <p/> </td> <td> <p>1.00</p> </td> <td> <p>%</p> </td> </tr> <tr> <td> <p> February</p> </td> <td> <p/> </td> <td> <p>9,800</p> </td> <td> <p> F</p> </td> <td> <p/> </td> <td> <p>0.98</p> </td> <td> <p>%</p> </td> <td> <p/> </td> <td> <p>15,000</p> </td> <td> <p> U</p> </td> <td> <p/> </td> <td> <p>1.50</p> </td> <td> <p>%</p> </td> </tr> <tr> <td> <p> March</p> </td> <td> <p/> </td> <td> <p>200</p> </td> <td> <p> U</p> </td> <td> <p/> </td> <td> <p>0.02</p> </td> <td> <p>%</p> </td> <td> <p/> </td> <td> <p>19,400</p> </td> <td> <p> U</p> </td> <td> <p/> </td> <td> <p>1.94</p> </td> <td> <p>%</p> </td> </tr> <tr> <td> <p> April</p> </td> <td> <p/> </td> <td> <p>4,000</p> </td> <td> <p> U</p> </td> <td> <p/> </td> <td> <p>0.40</p> </td> <td> <p>%</p> </td> <td> <p/> </td> <td> <p>25,600</p> </td> <td> <p> U</p> </td> <td> <p/> </td> <td> <p>2.56</p> </td> <td> <p>%</p> </td> </tr> <tr> <td> <p> May</p> </td> <td> <p/> </td> <td> <p>7,600</p> </td> <td> <p> F</p> </td> <td> <p/> </td> <td> <p>0.76</p> </td> <td> <p>%</p> </td> <td> <p/> </td> <td> <p>40,200</p> </td> <td> <p> U</p> </td> <td> <p/> </td> <td> <p>4.02</p> </td> <td> <p>%</p> </td> </tr> <tr> <td> <p> June</p> </td> <td> <p/> </td> <td> <p>7,800</p> </td> <td> <p> F</p> </td> <td> <p/> </td> <td> <p>0.78</p> </td> <td> <p>%</p> </td> <td> <p/> </td> <td> <p>34,000</p> </td> <td> <p> U</p> </td> <td> <p/> </td> <td> <p>3.40</p> </td> <td> <p>%</p> </td> </tr> <tr> <td> <p> July</p> </td> <td> <p/> </td> <td> <p>8,400</p> </td> <td> <p> F</p> </td> <td> <p/> </td> <td> <p>0.84</p> </td> <td> <p>%</p> </td> <td> <p/> </td> <td> <p>57,000</p> </td> <td> <p> U</p> </td> <td> <p/> </td> <td> <p>5.70</p> </td> <td> <p>%</p> </td> </tr> <tr> <td> <p> August</p> </td> <td> <p/> </td> <td> <p>10,200</p> </td> <td> <p> F</p> </td> <td> <p/> </td> <td> <p>1.02</p> </td> <td> <p>%</p> </td> <td> <p/> </td> <td> <p>76,000</p> </td> <td> <p> U</p> </td> <td> <p/> </td> <td> <p>7.60</p> </td> <td> <p>%</p> </td> </tr> <tr> <td> <p> September</p> </td> <td> <p/> </td> <td> <p>9,600</p> </td> <td> <p> F</p> </td> <td> <p/> </td> <td> <p>0.96</p> </td> <td> <p>%</p> </td> <td> <p/> </td> <td> <p>74,000</p> </td> <td> <p> U</p> </td> <td> <p/> </td> <td> <p>7.40</p> </td> <td> <p>%</p> </td> </tr> <tr> <td> <p> October</p> </td> <td> <p/> </td> <td> <p>11,400</p> </td> <td> <p> F</p> </td> <td> <p/> </td> <td> <p>1.14</p> </td> <td> <p>%</p> </td> <td> <p/> </td> <td> <p>84,000</p> </td> <td> <p> U</p> </td> <td> <p/> </td> <td> <p>8.40</p> </td> <td> <p>%</p> </td> </tr> <tr> <td> <p> November</p> </td> <td> <p/> </td> <td> <p>8,400</p> </td> <td> <p> F</p> </td> <td> <p/> </td> <td> <p>0.84</p> </td> <td> <p>%</p> </td> <td> <p/> </td> <td> <p>120,000</p> </td> <td> <p> U</p> </td> <td> <p/> </td> <td> <p>12.00</p> </td> <td> <p>%</p> </td> </tr> <tr> <td> <p> December</p> </td> <td> <p/> </td> <td> <p>8,600</p> </td> <td> <p> F</p> </td> <td> <p/> </td> <td> <p>0.86</p> </td> <td> <p>%</p> </td> <td> <p/> </td> <td> <p>104,000</p> </td> <td> <p> U</p> </td> <td> <p/> </td> <td> <p>10.40</p> </td> <td> <p>%</p> </td> </tr> <tr> <td> <hr/> <p/> </td> </tr> </tbody> </table> <p/> <table> <tbody> <tr> <td> <p/></td> <td> <p>McKeag’s controller uses the following rule of thumb:<br /> Investigate all variances equal to or greater than $60,000, which is 6<br /> percent of standard cost.</p> <table> <tbody> <tr> <td> <p><strong>Required:</strong></p> </td> </tr> </tbody> </table> <p/> <table> <tbody> <tr> <td> <p/></td> <td> <p><strong>1.</strong></p> </td> <td> <p>Which variances would have been investigated during the year?<br /> (Indicate month and type of variance.)<strong>(Indicate the effect of each variance by<br /> selecting “Favorable” or “Unfavorable”. Select<br /> “None” and enter “0” for no effect (i.e., zero<br /> variance). Round “Percentage of Standard Cost” to 2 decimal<br /> places.)</strong></p> </td> </tr> <tr> <td> <p>Variance Type</p> </td> <td> <p>Month</p> </td> <td> <p>Amount</p> </td> <td></td> <td> <p>Percentage of Standard Cost</p> </td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td> <p>%</p> </td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td> <p>%</p> </td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td> <p>%</p> </td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td> <p>%</p> </td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td> <p>%</p> </td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> </tbody> </table> <p/> <table> <tbody> <tr> <td> <p><strong>2.</strong></p> </td> <td> <p>What characteristics of the variance pattern shown in the<br /> report should draw the controller’s attention, regardless of the usual<br /> investigation rule?<strong>(Select all that apply.)</strong></p> </td> </tr> <tr> <td> <p>The company’s<br /> direct-labor efficiency variances exhibit a consistent unfavorable trend<br /> through the year.</p> </td> </tr> <tr> <td> <p><input/>The<br /> company’s direct-labor rate variances exhibit a favorable trend through<br /> most of the year.</p> </td> </tr> <tr> <td> <p><input/>The<br /> unfavorable trend of the direct-labor efficiency is on the increase through<br /> most of the year.</p> </td> </tr> <tr> <td> <p><input/>The<br /> favorable trend of the direct-labor rate is on the increase through the<br /> year.</p> </td> </tr> <tr> <td> <p><input/>The<br /> unfavorable trend of the direct-labor efficiency is under control till July<br /> with regard to the limits of the investigation rule.</p> </td> </tr> <tr> <td> <p><input/>None<br /> of the above.</p> </td> </tr> <tr> <td> <p><strong>3.</strong></p> </td> <td> <p>Which of the following is the best reason to also follow up on<br /> favorable variances?</p> </td> </tr> <tr> <td> <p/> </td> <td> <p/> </td> </tr> <tr> <td> <p/> </td> <td> <table> <tbody> <tr> <td> <p><input/></p> </td> <td> <p>Bias in investigation targets and subsequent reports is<br /> reduced.</p> </td> </tr> <tr> <td> <p><input/></p> </td> <td> <p>Production efficiencies may be able to be replicated<br /> elsewhere in the organization.</p> </td> </tr> <tr> <td> <p><input/></p> </td> <td> <p>Favorable variances occur more often as activity levels rise</p> </td> </tr> </tbody> </table> </td> </tr> <tr> <td> <p/> <p/> <p/> <p/> <p>4.Starlight Glassware Company has the<br /> following standards and flexible-budget data.</p> </td> </tr> </tbody> </table> <table> <tbody> <tr> <td> </td> <td> <p/> </td> </tr> <tr> <td> <p> Standard variable-overhead rate</p> </td> <td> <p>$</p> </td> <td> <p>7.00</p> </td> <td> <p> per direct-labor hour</p> </td> </tr> <tr> <td> <p> Standard quantity of direct labor</p> </td> <td> <p/> </td> <td> <p>2</p> </td> <td> <p> hours per unit of output</p> </td> </tr> <tr> <td> <p> Budgeted fixed overhead</p> </td> <td> <p>$</p> </td> <td> <p>96,000</p> </td> <td> <p/> </td> </tr> <tr> <td> <p> Budgeted output</p> </td> <td> <p/> </td> <td> <p>24,000</p> </td> <td> <p> units</p> </td> </tr> <tr> <td> <hr/> <p/> </td> </tr> </tbody> </table> <table> <tbody> <tr> <td> <p>Actual results for February are as follows:</p> </td> </tr> </tbody> </table> <table> <tbody> <tr> <td> </td> <td> <p/> </td> </tr> <tr> <td> <p> Actual output</p> </td> <td> <p/> </td> <td> <p>19,000</p> </td> <td> <p> units</p> </td> </tr> <tr> <td> <p> Actual variable overhead</p> </td> <td> <p>$</p> </td> <td> <p>342,000</p> </td> <td> <p/> </td> </tr> <tr> <td> <p> Actual fixed overhead</p> </td> <td> <p>$</p> </td> <td> <p>93,000</p> </td> <td> <p/> </td> </tr> <tr> <td> <p> Actual direct labor</p> </td> <td> <p/> </td> <td> <p>45,000</p> </td> <td> <p> hours</p> </td> </tr> <tr> <td> <hr/> <p/> </td> </tr> </tbody> </table> <p/> <table> <tbody> <tr> <td> <p><strong>Required:</strong></p> </td> </tr> </tbody> </table> <p/> <table> <tbody> <tr> <td> <p>Use the variance<br /> formulas to compute the following variances.<strong>(Indicate the effect of each variance by<br /> selecting “Favorable” or “Unfavorable”. Select<br /> “None” and enter “0” for no effect (i.e., zero<br /> variance).)</strong></p> </td> </tr> </tbody> </table> </td> </tr> <tr> <td> <p>1.</p> </td> <td> <p>Variable-overhead spending<br /> variance</p> </td> <td></td> <td> <p/></td> </tr> <tr> <td> <p>2.</p> </td> <td> <p>Variable-overhead efficiency<br /> variance</p> </td> <td></td> <td></td> <td> <p/></td> </tr> <tr> <td> <p>3.</p> </td> <td> <p>Fixed-overhead budget variance</p> </td> <td></td> <td></td> <td> <p/></td> </tr> <tr> <td> <p>4.</p> </td> <td> <p>Fixed-overhead volume variance</p> </td> <td></td> <td></td> <td> <p/></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> </tbody> </table> <p/> <p/> <p>5.</p> <table> <tbody> <tr> <td> <p>Starlight Glassware<br /> Company has the following standards and flexible-budget data.</p> </td> </tr> </tbody> </table> <table> <tbody> <tr> <td> </td> <td> <p/> </td> </tr> <tr> <td> <p> Standard<br /> variable-overhead rate</p> </td> <td> <p>$</p> </td> <td> <p>16</p> </td> <td> <p> per direct-labor<br /> hour</p> </td> </tr> <tr> <td> <p> Standard<br /> quantity of direct labor</p> </td> <td> <p/> </td> <td> <p>2.5</p> </td> <td> <p> hours per unit<br /> of output</p> </td> </tr> <tr> <td> <p> Budgeted<br /> fixed overhead</p> </td> <td> <p>$</p> </td> <td> <p>370,000</p> </td> <td> <p/> </td> </tr> <tr> <td> <p> Budgeted<br /> output</p> </td> <td> <p/> </td> <td> <p>28,500</p> </td> <td> <p> units</p> </td> </tr> <tr> <td> <hr/> </td> </tr> </tbody> </table> <table> <tbody> <tr> <td> <p>Actual results for<br /> February are as follows:</p> </td> </tr> </tbody> </table> <table> <tbody> <tr> <td> </td> <td> </td> </tr> <tr> <td> <p> Actual<br /> output</p> </td> <td> <p/> </td> <td> <p>19,600</p> </td> <td> <p> units</p> </td> </tr> <tr> <td> <p> Actual<br /> variable overhead</p> </td> <td> <p>$</p> </td> <td> <p>855,950</p> </td> <td> <p/> </td> </tr> <tr> <td> <p> Actual<br /> fixed overhead</p> </td> <td> <p>$</p> </td> <td> <p>326,000</p> </td> <td> <p/> </td> </tr> <tr> <td> <p> Actual<br /> direct labor</p> </td> <td> <p/> </td> <td> <p>50,350</p> </td> <td> <p> hours</p> </td> </tr> <tr> <td> <hr/> </td> </tr> </tbody> </table> <table> <tbody> <tr> <td> <p><strong>Required:</strong></p> </td> </tr> <tr> <td> <p>Use the following diagrams below (similar to.mhhe.com/connect/0077632451/Exhibit%2011%E2%80%936.jpg”>Exhibit 11-6 and.mhhe.com/connect/0077632451/Exhibit%2011%E2%80%938.jpg”>Exhibit 11-8 to compute (1) the<br /> variable-overhead spending and efficiency variances, and (2) the<br /> fixed-overhead budget and volume variances.<strong>(Round your “per hour” answers to<br /> 2 decimal places. Indicate the effect of each variance by selecting<br /> “Favorable” or “Unfavorable”. Select “None” and<br /> enter “0” for no effect (i.e., zero variance).)</strong><strong/></p> </td> </tr> </tbody> </table> <table> <tbody> <tr> <td> <p>Variable overhead<br /> variances:</p> </td> <td> <p/></td> </tr> <tr> <td></td> <td> <p><textarea/></p> </td> <td></td> </tr> <tr> <td></td> <td> <p/></td> </tr> <tr> <td></td> <td> <table> <tbody> <tr> <td> <p>Variable-Overhead Spending And Efficiency Variances</p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td> <p/></td> </tr> <tr> <td> <p>(Hours = Direct-Labor Hours)</p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td> <p/></td> </tr> <tr> <td></td> <td> <p>(1)</p> </td> <td></td> <td></td> <td></td> <td></td> <td> <p>(2)</p> </td> <td></td> <td></td> <td></td> <td></td> <td> <p>(3)</p> </td> <td></td> <td></td> <td></td> <td></td> <td> <p>(4)</p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td> <p/></td> </tr> <tr> <td></td> <td> <p><strong>Actual<br /> Variable Overhead</strong></p> </td> <td></td> <td></td> <td></td> <td></td> <td> <p><strong>Projected<br /> Variable Overhead</strong></p> </td> <td></td> <td></td> <td></td> <td></td> <td> <p><strong>Flexible<br /> Budget: Variable Overhead</strong></p> </td> <td></td> <td></td> <td></td> <td></td> <td> <p>Variable Overhead Applied To Work-In-Process</p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td> <p/></td> </tr> <tr> <td></td> <td> <p><strong>Actual Hours<br /> (AQ)</strong></p> </td> <td> <p>×</p> </td> <td></td> <td> <p><strong>Actual Rate<br /> (AVR)</strong></p> </td> <td></td> <td> <p><strong>Actual<br /> Hours (AQ)</strong></p> </td> <td> <p>×</p> </td> <td></td> <td> <p><strong>Standard<br /> Rate (SVR)</strong></p> </td> <td></td> <td> <p><strong>Standard<br /> Allowed Hours (SQ)</strong></p> </td> <td> <p>×</p> </td> <td></td> <td> <p><strong>Standard<br /> Rate (SVR)</strong></p> </td> <td></td> <td> <p><strong>Standard<br /> Allowed Hours (SQ)</strong></p> </td> <td> <p>×</p> </td> <td></td> <td> <p><strong>Standard<br /> Rate (SVR)</strong></p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td> <p>×</p> </td> <td></td> <td></td> <td></td> <td></td> <td> <p>×</p> </td> <td></td> <td></td> <td></td> <td></td> <td> <p>×</p> </td> <td></td> <td></td> <td></td> <td></td> <td> <p>×</p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td> <p>hours</p> </td> <td></td> <td></td> <td> <p>per hour</p> </td> <td></td> <td> <p>hours</p> </td> <td></td> <td></td> <td> <p>per hour</p> </td> <td></td> <td> <p>hours</p> </td> <td></td> <td></td> <td> <p>per hour</p> </td> <td></td> <td> <p>hours</p> </td> <td></td> <td></td> <td> <p>per hour</p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td> <p>Variable-overhead spending variance</p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td> <p>Variable-overhead efficiency variance</p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td> <p/></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> </tbody> </table> </td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> </tbody> </table> <p/> <table> <tbody> <tr> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td> <p/></td> </tr> <tr> <td></td> <td> <table> <tbody> <tr> <td> <p><strong>Fixed-Overhead<br /> Budget And Volume Variances</strong></p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td> <p>(Hours = Direct-Labor Hours)</p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td> <p>(1)</p> </td> <td></td> <td></td> <td></td> <td> <p>(2)</p> </td> <td></td> <td></td> <td> <p>(3)</p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td> <p>Actual Fixed Overhead</p> </td> <td></td> <td></td> <td></td> <td> <p><strong>Budgeted<br /> Fixed Overhead</strong></p> </td> <td></td> <td></td> <td> <p>Fixed Overhead Applied To Work In Process</p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td> <p><strong>Standard<br /> Allowed Hours</strong></p> </td> <td></td> <td> <p>×</p> </td> <td> <p><strong>Standard<br /> Fixed-Overhead Rate</strong></p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td> <p>×</p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td> <p>hours</p> </td> <td></td> <td></td> <td> <p>per hour</p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> <tr> <td></td> <td></td> <td> <p>Fixed-overhead<br /> budget variance</p> </td> <td></td> <td></td> <td></td> <td></td> <td> <p>Fixed-overhead<br /> volume variance</p> </td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> <td></td> </tr> </tbody> </table> </td> </tr> <tr> <td></td> <td></td> <td></td> <td></td> </tr> </tbody> </table> <p/></div> </div> <div class="woocommerce-Tabs-panel woocommerce-Tabs-panel--reviews panel entry-content wc-tab" id="tab-reviews" role="tabpanel" aria-labelledby="tab-title-reviews"> <div id="reviews" class="woocommerce-Reviews"> <div id="comments"> <h2 class="woocommerce-Reviews-title">Reviews</h2> <p class="woocommerce-noreviews">There are no reviews yet.</p> </div> <div id="review_form_wrapper"> <div id="review_form"> <div id="respond" class="comment-respond"> <span id="reply-title" class="comment-reply-title">Be the first to review “intermediate accounting questions” <small><a rel="nofollow" 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Category: Accounting Tags: 0, accounting, accounting, aume, available, balance, bonds, comprehensive, december, dollar, ended, fair, following, income, intermediate, investment, monopoly, portfolio, purchased, questions, reported, respect, sale, securities, sheetinvestment, sold, stock, stocks, totaled, trading, twister, twisters, value, year

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1. (1 point)
On January 1, 2014, Monopoly Corporation purchased a debt security as a held-to-maturity investment. Monopoly paid $358,859 for the 3-year bonds which had a face value of $350,000, a stated rate of 10% and pay interest annually. The bonds were sold to yield 9%, and the investment had a fair value of $354,718 at December 31, 2014.

With respect to this portfolio, what dollar amount will be reported on Monopoly’s December 31, 2014, balance sheet?
Investment in Bonds $___________________

2. (1 point)
Twister Corp owns a stock portfolio with the following 12/31/13 values:

Cost Fair Value
December 31, 2013: $388,000 $371,000

During 2014, Twister sold stocks from its portfolio. Those stocks had a cost basis of $168,000 and were sold for $172,000. Additionally, stocks were purchased for $200,000 as a passive investment. Dividends received during the year totaled $18,000. The investment portfolio had a fair value of $409,000 at December 31, 2014. “Preliminary income” (i.e., income before consideration of these investments) for the year ended December 31, 2014, totaled $100,000.

Part A) Assume the portfolio consists of only trading securities. With respect to this portfolio:

What dollar amount will be reported on Twister’s December 31, 2014, balance sheet?

Investment in Stocks $___________________

What dollar amount would Twister report as net income for the year ended December 31, 2014?

Net Income $___________________

Part B) Instead, assume that the portfolio consist of only available for sale securities, and that Twister reported the following Stockholders’ Equity on its December 31, 2013, balance sheet:

Common Stock $3,925,000
Paid-in-Capital 9,855,000
Accumulated Other Comprehensive Income 390,750
Retained Earnings 7,061,340

With respect to this available for sale portfolio, what dollar amounts will be reported on Twister’s December 31, 2014, balance sheet?
Investment in Stocks $___________________

Accumulated Other Comprehensive Income $___________________

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Category: Accounting Tags: 0, 1, absorption, accounting, accounting, annual, breakeven, calculate, cost, costing, estimated, expense, expenses, fixed, following, hint, income, intermediate, irish, margin, overhead, percent, plant, price, questions, ratio, sales, second, selling, total, unit, units, variable, year

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E10-6 Adjusting variable cost income to absorption net income:

the fixed overhead budgeted for MacBeth Co. at an expected capacity of 500,000 units is 1,500,000. variable costing is used internally, and the net income is adjusted to an absorption costing net income at year-end.

Data collected over the last three years show the following:

Units produced: 502,000 (first year), 498,000 (second year), 496,000 (third year)

Units sold: 496,000 (first year), 503,000 (second year), 496,000 (third year)

net income (variable cost): $500,000 (first year), $521,000 (second year), $497,000 (third year)

Determine the adjustment each year to convert the variable costing income to absorption costing net income. Compute the absorption costing net income for each year.

P10-8

Break-even analysis:

the production of a new product required Venetian Manufacturing Co. to lease additional plant facilities.

Based on studies, the following data have been made available: Estimated annual sales- 24,000 units:

Estimated costs: materials $96,000 at $4 per unit

direct labor $14,400 at $0.60 per unit

factory overhead 24,000 at $1.00 per unit

administrative expense 28,800 at $1.20 per unit

total $163,200 at $6.80 per unit

selling expenses are expected to be 5% of sales, and net income is to amount to $2.00 per unit.

1. calculate the selling price per unit (hint: let “x” equal the selling price and express selling expense as a percentage of “x”)

2. prepare an absorption costing income statement for the year ended December 31, 2013

3. calculate the break-even point expressed in dollars and in units, assuming that administrative expense and factory overhead are all fixed but other costs are fully variable.

P10-11

Calculating break-even point, contribution margin ration, and margin of safety ratio:

leprechaun enterprises inc., is considering building a manufacturing plant in county cork. predicting sales of 100,000 units, leprechaun estimates the following expenses:

materials: $19,000 (total annual expenses), 10% (percent of total annual expenses that are fixed)

labor: $26,000 (total annual expenses), 20% (percent of total annual expenses that are fixed)

overhead: $40,000 (total annual expenses), 40% (percent of total annual expenses that are fixed)

marketing and administration: $14,000 (total annual expenses, 60% (percent of total annual expenses that are fixed)

total: $99,000

an irish firm that specializes in marketing will be engaged to sell the manufactured product and will receive a commission of 10% of the sales price. none of the u.s. home office expense will be allocated to the irish facility.

1. if the unit sales price is $2, how many units must be sold to break even? (hint: first compute the variable cost per unit)

2. calculate the margin of safety ratio

3. calculate the contribution margin ratio

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Category: Accounting Tags: 0, 1, 90day, account, accounting, accounting, accounts, aets, aume, bank, cash, check, company, corporation, december, dusty, financial, form, hampton, information, intermediate, january, market, marketable, microsoft, money, note, prepare, questions, receivable, record, roads, securities, write

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7.3 The former bookeeper of White Electric Supply is serving time in prision for embezzling nearly $416,000 in less than five years. Like so many other ordinary employees, she started out by taking only small amounts. By the time she was caught, she was stealing lump sums of $5,000 and 10,000. Her method was crude and simple. She would write a check for the correct amount payable to a supplier for say, $15,000. However, she would record in the companys check register an amount significantly greater, say, $20,000. She would then write a check payable to herself for the $5,000 difference. In the check register, next to the number of each check she had deposited in her personal bank account, she would write the “void,” making it appear as though the ceck had been destroyed. This process went undected for nearly five years.
A. What controls must have been lacking at White Electric Supply to enable the bookeeper to steal nearly $416,000 before being caught?
B. What the bookkeeper did was definitely unethical. But what if one of her grandchildren had been ill and needed an expensive operation? If this had been the case, would it have been ethical for her to take company funds to pay for the operation if she intended to pay the company back in full? Defend your answer

7.5 Shown below is the information needed to prepare a bank reconciliation for Warren Electric at December 31:

1. At December 31, cash per the bank statement was $15,200; cash per the company’s records was $17,500.
2. Two debit memoranda accompanied the bank statement: service charges for December of $25, and a $775 check drawn by Jane Jones marked “NSF.”
3. Cash receipts of $10,000 on December 31 were not deposited until January 4.
4. The following checks had been issued in December but were not included among the paid checks returned by the bank: no. 620 for $1,000, no. 630 for $3,000, and no. 641 for $4,500.

Required
a. Prepare a bank reconciliation at December 31.
b. Prepare the necessary journal entry or entries to update the accounting records
c. Assume that the company normally is not required to pay a bank service charge if it maintains a minimum average daily balance of $1000 throughout the month. If the company average daily balance for December had been $8000, why did it have to pay a $25 service charge

7.7

Many companies hold a significant portion of their financial assets in the form of marketable securities. For example, Microsoft Corporation recently reported investments in marketable securities totaling $ 25.3 billion, an amount equal to 59 percent of its total financial assets. In contrast, only 26 percent of its financial assets were in the form of accounts receivable.

a. Define marketable securities ( also referred to as short- term investments). What characteristics of these securities justify classifying them as financial assets?

b. What is the basic advantage of Microsoft Corporation keeping financial assets in the form of marketable securities instead of cash? Is there any disadvantage?

c. Explain how Microsoft Corporation values these investments in its balance sheet.

d. Discuss whether the valuation of marketable securities represents a departure from ( 1) the cost principle and ( 2) the objectivity principle.

e. Explain how fair value accounting benefits the users of Microsoft Corporation ’ s financial statements

7.9 The following information was taken from recent annual reports of the GOODYEAR TIRE RUBBER, and PPL ENERGY CO, a public utility.

Net Sales……… Gooyear = $19.6 billion …. PPL $5.1 billion

Average Accounts Receivable…. Goodyear = 3.1 billion……PPL = $376 million

a. Compute for each company the accounts receivable turnover rate for the year.

b. Compute for each company the average number of days required to collect outstanding receivables. ( round to nearest whole day0

c. Explain why the figures computed for Good Year in parts a. and b. Are so different then those computed for PPL.

7.14 7.14
On August 1, 2011, Hampton Construction received a 9 percent, six- month note receivable from Dusty Roads, one of Hampton Construction’s problem credit customers. Roads had owed $ 36,000 on an outstanding account receivable. The note receivable was taken in settlement of this amount. Assume that Hampton Construction makes adjusting entries for accrued interest revenue once each year on December 31.
a. Journalize the following four events on the books of Hampton Construction.

1. Record the receipt of the note on August 1 in settlement of the account receivable.

2. Record accrued interest at December 31, 2011.

3. Assume that Dusty Roads pays the note plus accrued interest in full. Record the collection of the principal and interest on January 31, 2012.

4. Assume that Dusty Roads did not make the necessary principal and interest payment on January 31, 2012. Rather, assume that he defaulted on his obligation. Record the default on January 31, 2012.

7.6 Tyson Furniture has $100,000 in excess cash that it wants to invest in one or more cash equivalents. The treasurer has researched two money market accounts and two certificates of deposit (CDs) offered by four major banks. This is the information she gathered:
Penalty
Minimum Interest for Early Financial
Investment Institution Investment Type Investment Rate Withdrawal? Risk
Nexity Bank Money market account $ 1,000 0.5% No Very low
Bank of America Money market account 50,000 1.0 No Very low
Discover Bank 90-day CD 2,500 1.3 Yes Very low
Commerce Bank 90-day CD 100,000 1.4 Yes Very low

The two 90-day certificates of deposit are FDIC insured for up to $100,000. The money market accounts are not FDIC insured.
Suggest how Tyson Furniture might allocate its $100,000 cash among these four opportunities.
Discuss the trade-offs that management must consider.

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Category: Accounting Tags: 0, 1, 2, accounting, accounting, applied, based, charge, charges, contract, cost, direct, discu, documents, executives, industries, intermediate, invoice, labor, machine, material, overhead, price, questions, quindo, request, requested, salem, salems, specialized, specific, strategy, time, tool

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Salem Corp. contracted for a specialized production machine from Quindo Industries, a tool company. The contract specified a price equal to “115 percent of production cost.” A sales executive at the Quindo told Salem’s management that the approximate price of the machine would be $1,725,000 based on the following estimates:
Direct material cost $500,000
Direct labor cost 400,000
Manufacturing overhead ( applied based on machine time) 600,000
Markup 225,000
Estimated price to $1,725,000

Two months later, Quindo Industries delivered the completed machinery, configured and manufactured as per the contract. However, the accompanying invoice caught Salem’s executives by surprise. The invoice provided the following:

Direct material cost $658,000 Direct labor cost 625,000
Manufacturing overhead (applied based on machine time) 640,000
Markup 288,450 Estimated price to Salem $2,211,450
Upon receiving the invoice, Salem executives requested an audit of the direct material charges because they were more than 30 percent higher than the original estimate. Quindo Industries granted the request and Salem hired your firm to conduct the audit.

a. Describe the strategy you used to validate the $658,000 charge for direct material and discuss the specific documents that you requested from the tool company as part of the audit.
b. Describe your strategy for validating the $625,000 charge for direct labor and discuss specific documents you will request from Quindo Industries as part of the audit.
c. How might Quindo Industries have manipulated the predetermined overhead rate?
d. Even if all the charges are validated, do you perceive the tool company’s behavior in this case as ethical? Explain.
e. What suggestions would you give to Salem for the next time they are looking to contract for such an expensive specialized product.

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Category: Accounting Tags: academic, accounting, accounting, actual, average, budgeted, claes, costs, credit, direct, faculty, following, hour, hours, intermediate, labor, materials, overall, overhead, period, pounds, quantity, questions, sammy, seventh, standard, student, tuition, university, upcoming, used, variable, variance, year

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1. Seventh Heaven takes tourists on helicopter tours of Hawaii. Each tourist buys a $150 ticket; the variable costs average $60 per person. Seventh Heaven has annual fixed costs of $702,000.

a. How many tours must the company conduct in a month to break even?
b. What is the amount of monthly sales (in $dollars) to break-even ?
b. Compute the sales revenue needed to produce a target net profit of $36,000 per month.

2. Altered State University (ASU) is preparing its master budget for the upcoming academic year. Currently, 12,000 students are enrolled on campus; however, the admissions office is forecasting a 5% growth in the student body next year despite a tuition hike to $80 per credit hour. The following additional information has been gathered from an examination of university records and conversations with university officials:
• The average class has 30 students, and the typical student takes 15 credit hours each semester.
• Each class is three credit hours.
• Each faculty member teaches five classes during the academic year.

a. What is the budgeted tuition revenue for the upcoming academic year ?

b. How many faculty members will be needed to teach classes in the upcoming year ?

3. Sammy Corp manufactures helmets. Sammy uses a standard costing system with the following standards:

STANDARD Quantity Price
Direct Materials 1000 pounds $12 per lb.
Direct Labor 2500 hours $20 per hour
Variable OH ——- $30 per DLH

a. The actual amount of direct materials purchased and used last period was 900 pounds. The average price paid was $15.00 per pound. What is the overall Direct Material Variance ? Show your diagram here if you decide to use one.

b. What is the Direct Materials Price Variance ?

c. What is the Direct Materials Quantity Variance ?

d. The actual direct labor costs last period were $25.00 per hour. Sammy assumed that by paying the workers more than the standard, the workers’ higher efficiency would make up for the higher costs. Last period the Direct Labor Efficiency Variance was $14,000 (F). How many direct labor hours were actually used last period ? Show your diagram here if you use one

e. What is the Direct Labor Wage Variance ?

f. What is the overall Direct Labor Variance ?

g. What was the budgeted amount of Variable Overhead ?

h. The actual variable overhead costs were $70,000. What was the VARIABLE OVERHEAD SPENDING VARIANCE ? Make sure to clearly indicate your answer !!

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Category: Accounting Tags: accounting, accounting, axel, balance, book, calculate, calculating, cost, depreciation, early, equipment, equity, income, intermediate, iued, meet, method, methods, miles, paidincapital, payment, plan, present, questions, schedule, shares, sheet, stock, swifty, total, truck, value, year, years

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P9-28A
(p.517) :Capitalized asset cost and first year depreciaton, and identifying
depreciation results that meet management objectives

On January 9, 2010, Swifty Delivery Service
purchased a truck at cost of $67,000. Before placing the truck in service,
Swifty spent $2,200 painting it, $500 replacing tires, and $5,000 overhauling
the engine. The truck should remain in service for 6 years and have a residual
value of $14,700. The truck’s annual mileage is expected to be 15,000 miles in
each of the first 4 years and 10,000 miles in each of the next 2 years–80,000
miles in total. In deciding, which depreciation method to use, Jerry Speers, the
general manager, requests a depreciation schedule for each of the depreciation
methods (straight line, units of production, and double declining balance).

Requirements

1. Prepare a depreciation schedule for each
depreciation method, showing asset cost, depreciation expense, accumulated
depreciation , and asset book value.

2. Swifty prepares financial statements using the
depreciation method that reports the hightest net income in the early years of
asset use. For income tax purposes, the company uses the depreciation method
that minimizes income taxes in the early years. Consider the first year that
Swifty uses the truck. Identify the depreciation methods that meet the general
managers objectives, assuming the income tax authorities permit the use of any
of the methods.

P10A-9B: p.586 -Calculating present value

Calculating present value
Axel needs new manufacturing equipment. Two companies can provide similar equipment but under different payment plans:

Plan A: MRE offers to let Axel pay $35,000 each year for five years. The payments include interest at 12% per year.

Plan B: Westernhome will let Axel make a single payment of $42,000 at the end of five years. This payment includes both principal and interest at 12%.

Requirements:
1. Calculate the present value of Plan A.
2. Calculate the present value of Plan B.
3. Axel will purchase the equipment that costs the least, as measured by present value. Which equipment should Axel select? Why?

Additional Requirements

P11-29A p. 631: Analyzing the
stockeholders equity section of the balance sheet

The balance sheet of Ballcraft, Inc.,
reported the following:

Preferred stock, $6 par, 6%
5,000 shares authorized and issued
………………………………. $30,000
Common stock, $4.00 par value, 45,000 shares
authorized;
10,000 shares issued
………………………………….. $40,000
Additional paid-in-capital-common
…………………… $219,000

Total paid-in-capital
………………………………………….. $289,000

Retained earnings …………………………………………….
$90,000

Total stockholder’s equity
………………………………….. $379,000

Preferred dividends are in arrears for two years,
including the current year. On the balance sheet date, the market value of the
Ballcraft common stock was $31 per share.

Requirements:
1. Is the preferred stock cumulative or
noncumulative? How can you tell?
2. What is the total paid-in-capital of the
company?
3. What was the total market value of the common
stock?
4. Compute the book value per share of the common
stock.

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