# Final Revision

```Part (1)
Financial Accounting
Problem (1)
Problem (2)
There are ten transactions listed below. Match the transactions that have the identical effect on the
accounting equation. You should end up with 5 matches.
a. Receive cash from customers on account.
b. Initial cash contribution by an owner.
c. Pay cash to reduce accounts payable.
d. Purchase supplies for cash.
e. Pay cash to reduce notes payable.
f. Purchase supplies on account.
g. Additional cash contribution by an owner.
h. Purchase equipment with a note payable.
i. Pay utilities with cash.
j. Company pays dividends to stockholders.
Solution:
Match #1
#2
#3
#4
#5
=
=
=
=
=
a, d
c, e
f, h
b, g
i, j
Problem (3)
The comparative condensed income statements of Moran Corporation are shown below.
MORAN CORPORATION
Comparative Condensed Income Statements
For the Years Ended December 31
Net sales
Cost of goods sold
Gross profit
Operating expenses
Net income
2011
\$600,000
450,000
150,000
54,000
\$ 96,000
2010
\$500,000
400,000
100,000
40,000
\$ 60,000
Instructions
(a) Prepare a horizontal analysis of the income statement data for Moran Corporation using 2010 as a
base. (Show the amounts of increase or decrease.)
(b) Prepare a vertical analysis of the income statement data for Moran Corporation in columnar form
for both years.
Solution 19
(a)
MORAN CORPORATION
Condensed Income Statements
For the Years Ended December 31
—————————————————————————————————————————
——
Increase or (Decrease)
During 2010
2011
2010
Amount
Percentage
Net sales
\$600,000
\$500,000
\$100,000
20.0%
Cost of goods sold
450,000
400,000
50,000
12.5%
Gross profit
150,000
100,000
50,000
50.0%
Operating expenses
54,000
40,000
14,000
35.0%
Net income
\$ 96,000
\$ 60,000
\$ 36,000
60.0%
(b)
MORAN CORPORATION
Condensed Income Statements
For the Years Ended December 31
—————————————————————————————————————————
——
2011
2010
Amount
Percentage
Amount Percentage
Net sales
\$600,000
100.0%
\$500,000
100.0%
Cost of goods sold
450,000
75.0%
400,000
80.0%
Gross profit
150,000
25.0%
100,000
20.0%
Operating expenses
54,000
9.0%
40,000
8.0%
Net income
\$ 96,000
16.0%
\$ 60,000
12.0%
Problem (4)
Selected financial statement data for Morton Company are presented below.
Cash
Short-term investments
Receivables (net)
Inventories
Total current liabilities
December 31, 2011
\$ 40,000
25,000
100,000
85,000
100,000
During 2011, net sales were \$900,000, and cost of goods sold was \$705,000.
Instructions
Compute the following ratios at December 31, 2011:
(a) Current.
(b) Acid-test.
(c) Receivables turnover.
(d) Inventory turnover.
December 31, 2010
\$30,000
18,000
80,000
65,000
90,000
Solution:
(a)
(b)
(c)
(d)
Current = 2.5:1 (\$250,000  \$100,000)
Acid-test = 1.65:1 (\$165,000  \$100,000)
Receivables turnover = 10 times [\$900,000  (\$100,000 + \$80,000)  2]
Inventory turnover = 9.4 times [\$705,000  (\$85,000 + \$65,000)  2]
Problem (5)
Ans: 119 a, 120 c, 121 b, 122 a
Financial Accounting MCQ
1. Accountants refer to an economic event as a
a.
b.
c.
d.
purchase.
sale.
transaction.
change in ownership.
Ans: c
2. Which of the following would not be considered internal users of accounting data for a company?
a.
b.
c.
d.
The president of a company
The controller of a company
Creditors of a company
Salesmen of the company
Ans: c
3. Which of the following is an external user of accounting information?
a.
b.
c.
d.
Labor unions
Finance directors
Company officers
Managers
Ans: a
4. Generally accepted accounting principles are
a. income tax regulations of the Internal Revenue Service.
b. standards that indicate how to report economic events.
c. theories that are based on physical laws of the universe.
d. principles that have been proven correct by academic researchers
Ans: b
5. GAAP stands for
a.
b.
c.
d.
Generally Accepted Auditing Procedures.
Generally Accepted Accounting Principles.
Generally Accepted Auditing Principles.
Generally Accepted Accounting Procedures.
Ans: b
6. The common characteristic possessed by all assets is
a.
b.
c.
d.
long life.
great monetary value.
tangible nature.
future economic benefit.
Ans: d
7. Revenues would not result from
a.
b.
c.
d.
sale of merchandise.
initial investment of cash by owner.
performance of services.
rental of property.
Ans: b
8. A successful grocery store would probably have
a.
b.
c.
d.
Ans: b
a low inventory turnover.
a high inventory turnover.
zero profit margin.
low volume.
Part (2)
Cost / Managerial Accounting
EX (1):
The Rocky Catering Company specializes in preparing Mexican dinners that it freezes
and ships to restaurants in the Denver area. When a customer orders an item, the
restaurant heats and services it. The budget data for 2005 are
Product
Chicken Tacos
Selling price to restaurants \$5
\$7
Variable expenses
\$3
\$4
Contribution margin
\$2
\$3
Number of units
250,000
125,000
The Company prepare the items in the same kitchens, delivers them in the same trucks.
Therefore, decisions about the individual products do not affect the fixed costs of
\$735,000.
1. Compute the planned net income for 2005.
2. Compute the break-even point in units, assuming that the company maintains its
planned sales mix.
1.
Net income (loss)
= 250,000(\$2) + 125,000(\$3) - \$735,000
= \$500,000 + \$375,000 - \$735,000
= \$140,000
2.
Let B = number of units of beef enchiladas to break even (B)
2B = number of units of chicken tacos to break even (C)
Total contribution margin - fixed expenses = zero net income
\$3B + \$2(2B) - \$735,000
\$7B
B
2B
=0
= \$735,000
= 105,000
= 210,000 = C
The break-even point is 105,000 units of beef enchiladas plus 210,000 units of chicken
tacos, a grand total of 315,000 units.
EX (2):
Assuming a constant mix of 3 units of Alpha for every 1 unit of Beta, a selling price of
\$21.60 for Alpha and \$28.80 for Beta, variable costs per unit of \$14.40 for Alpha and
\$16.80 for Beta, and total fixed costs of \$53,760, the break-even point in units would
be:
a.
b.
c.
d.
4,800 units of Alpha and 1,600 units of Beta
1,200 units of Alpha and 400 units of Beta
1,600 units of Alpha and 4,800 units of Beta
40,320 units of Alpha and 13,440 units of Beta
Sales
Variable costs
Contribution margin
Sales mix
Contribution margin per mix
Alpha
\$21.60
14.40
\$7.20
x3
\$21.60
Beta
\$28.80
16.80
\$12.00
x1
\$12.00
Total contribution margin per mix = \$21.60 + \$12.00 = \$33.60
Break-even point in composite units = \$53,760 / \$33.60 = 1,600
Alpha:
Beta:
1,600 x 3 = 4,800 units
1,600 x 1 = 1,600 units
EX (3):
Jefferson Company produces only product A. The following information is available:
Selling price per unit
\$95
Variable costs per unit
\$70
Total fixed costs
\$130,000
Required:
a. Compute break-even point in units.
b. Compute break-even volume in dollars.
a. \$130,000 / (\$95 - \$70) = 5,200 units
b. 5,200 units x \$95/unit = \$494,000
EX (4):
The following information is for Wood Products Corporation:
Total fixed costs
\$345,700
Unit variable costs
\$50.95
Unit selling price
\$68.50
Required:
a. Compute the contribution margin per unit.
b. Compute the contribution-margin ratio.
c. Compute the break-even point in units.
d. Compute the break-even volume in dollars.
a. \$68.50 - \$50.95 = \$17.55 per unit
b. \$17.55 / \$68.50 = .2562
c. \$345,700 / \$17.55 = 19,698 units
d. 19,698 units x \$68.50 = \$1,349,313
EX (5):
The Yetmar Family Restaurant is open 24 hours per day serving breakfast, lunch, and
dinner. Fixed costs are \$24,000 per month. Variable costs are estimated at \$9.60 per
meal. The average total bill (excluding tax and tip) is \$12 per customer.
Required:
a. Compute the number of meals that must be served if the Family
Restaurant wishes to earn a profit before taxes of \$6,000.
b. Compute the break-even point in meals.
c. Compute the break-even volume in dollars.
d. Assume that fixed costs increase to \$30,000. How many additional
meals must be served if the Yetmar Family Restaurant wishes to earn the
same before-tax profit?
a. (\$24,000 + \$6,000) / (\$12.00 - \$9.60) = 12,500 meals
b. \$24,000 / (\$12.00 - \$9.60) = 10,000 meals
c. 10,000 meals x \$12 per meal = \$120,000
d. (\$30,000 - \$24,000) / (\$12.00 - \$9.60) = 2,500 meals
EX (6):
Dodger Company produces two products, X and Y. The following
information is presented for both products:
Selling price per unit
Variable cost per unit
X
Y
\$46
\$38
\$36
\$24
Total fixed costs are \$234,000. Dodger Company plans to sell 21,000 units
of product X and 7,000 units of product Y.
Compute:
a. Contribution margin for each product
b. Current net income
c. Break-even point in units of both X and Y if the sales mix is 3 units of
X for every unit of Y
d. Break-even volume in total dollars if the sales mix is 2 units of X for
every 3 units of Y
a. X: \$46 - \$38 = \$8
Y: \$36 - \$24 = \$12
b. (21,000 x \$8) + (7,000 x \$12) - \$234,000 = \$18,000
c. 21,000:7,000 = 3:1
(3 x \$8) + (1 x \$12) = \$36
\$234,000 / \$36 = 6,500 units
X: 6,500 x 3 = 19,500 units
Y: 6,500 x 1 = 6,500 units
d. (2 x \$8) + (3 x \$12) = \$52
\$234,000 / \$52 = 4,500 units
X: 4,500 x 2 = 9,000 x \$46 = \$414,000
Y: 4,500 x 3 = 13,500 x \$36 = \$486,000
Total dollar sales = \$900,000
EX (7):
Fill in the blanks for each of the following independent cases (ignore income taxes):
1.
2.
3.
Sales
\$800,000
\$600,000
\$ ------
variable expenses
\$400,000
\$ -------\$600,000
Contribution Margin
\$ -------\$300,000
\$340,000
Fixed Expenses
\$300,000
\$ --------\$250,000
Net Income
\$ -------\$200,000
\$ --------
1. CM= 400000 NI= 100000
2. VC= 300000 FC= 100000
3. Sales= 940000 NI= 90000
EX (8):
ABC Company specializes in hauling heavy goods over long distances. The company's
revenues and expenses depend on revenue miles, a measure that combines both weights
and mileage. Summarized budget data for next year are based on predicted total revenue
miles of 800,000. At that level of volume, and at any level of volume between 700,000
and 900,000 revenue miles, the company's fixed costs are \$120,000. The selling price
and variable costs are
Per Revenue Mile
Average selling price (revenue)
Average variable expenses
\$2
\$1.7
1- Compute contribution margin ratio and break-even point in dollars.
2- Compute the budgeted net income. Ignore income taxes.
1. CM = Selling price- VC/ mile
= 2- 1.7= 0.3
BEP= 120000/ 0.3= 400000 miles &times; 2= \$ 800000
2. CM- FC= NI
0.3 &times; 800000 = 120000
EX (9):
Answer: 102 D , 103 A
EX (10):
, 104 C
Ex (11):
EX (12):
Answer: 112 B , 113 D
EX (13):
EX (14):
Answer: 117 B , 118 D
EX (15):
Answers: 126 C , 127 D
EX (16):
Answers: 128 B , 129 B
EX (17):
EX (18):
EX (19):
EX (20):
In Alpha manufacturing company, the machine hours for one month amounted 1,000
and total cost of maintenance amounted \$5,000. If the machine hours (cost driver) is
duplicated, the total cost will increase by 60%.
Required:
1. Estimate the cost function and comment on it.
2. Estimate the machine hours if total cost of maintenance amounted \$14500.
b= (8000- 5000) &divide; (2000 – 1000)
= 3000 &divide; 1000
= \$3/ Mhr
Y= a + bx
5000= a+ 3&times; 1000
a= 5000- 3000= 2000
1. Cost equation(function):
Y = 2000 + 3X
2. Y = 2000 + 3X
14500= 2000+ 3x
14500- 2000= 3x
X = 12500&divide;3= 4167 Mhrs
EX (21):
B= difference in costs/ difference in volume
= (22000 – 16500) &divide; (1600 – 1100)
= 5500 &divide; 500
= \$11/ unit
Y= a + bx
22000 = a + 11 &times; 1600
a= 22000- 17600= 4400
Cost equation:
Y = 4400 + 11X
EX (22):
Question (1) [Inventory Costing]
Given the following information for the month of December:
A company had inventory of 5 units at a cost of \$20 each on December 1.
On December 10, they purchased 10 units at \$22 each.
On December 15 they purchased 6 units at \$25 each.
On December 20, they sold 18 units for \$54 each.
Complete the following table
Costing Method
Cost of goods available for sale
Cost of goods sold
Cost of Ending Inventory
FIFO
LIFO
Average Cost
Solution:
Costing Method
Cost of goods available for sale
Cost of goods sold
Cost of Ending Inventory
FIFO
470
395
75
LIFO
470
410
60
Average Cost
470
402.14
67.14
FIFO
Cost of goods available for sale= (5 x 20) + (10 x 22) + (6 x 25) = \$470
Number of Units available for sale = 5 + 10 +6 = 21 units
Ending Inventory = 21 units – 18 units = 3 units
Cost of Ending Inventory = 3 units x 25 = \$75
Cost of goods sold = 470 – 75 = \$395
LIFO
Cost of goods available for sale= (5 x 20) + (10 x 22) + (6 x 25) = \$470
Number of Units available for sale = 5 + 10 +6 = 21 units
Ending Inventory = 21 units – 18 units = 3 units
Cost of Ending Inventory = 3 units x 20 = \$60
Cost of goods sold = 470 – 60 = \$410
Average Cost
Average cost per unit = Cost of goods available for sale &divide; Number of Units available for sale
= \$470 &divide; 21 units ≈ \$22.38 / unit
Cost of Ending Inventory = 3 units x 22.38 = \$67.14
Cost of goods sold = 470 – 67.14 = 402.14 ≈ 18 units x 22.38 = 402.84
```