ACC #2

Return on investment is used to evaluate how many of the following? Profit center Investment center Cost center

1

The Beneke Corporation reported the following data: Year 3 Year 2 Year 1 Cash $6,000 $4,200 $3,800 Accounts Receivable 900 700 600 Inventory 8,900 8,200 7,800 Equipment 40,000 36,000 34,000 Accounts Payable 2,800 3,100 3,000 Notes Payable 12,400 11,500 10,300 Revenue 39,500 36,000 32,400 What is the company's average collection period for Year 3?

7.4 (with margin: 0) Average collection period is: Average accounts receivable / (Sales/365) so for year 3, that's: ((900+700)/2) / (39,500/365) = 7.39240 which rounds to 7.40

The Ripley Company recently purchased a new forklift; the equipment had a listed sales price of $80,000, but the company got a negotiated discounted sales price of $75,000. The company also had to pay an additional $4,000 in related taxes and $500 for delivery fees. When the company records the purchase, what total dollar amount should it use in the transaction? Enter as a positive number.

79,500 Tip: capital expenditures are recorded at their purchase cost plus any related fees (e.g. freight, assembly, installation) and taxes.

How many of the following ratios use data from the balance sheet in their calculation? Gross profit rate Debt to assets ratio Average collection period Return on investment

3

If a company paid a utility bill it had just received, the transaction would include

(Cash) and (Utilities expense)

Which of the following transactions would be used to record the expiration of insurance in the accounting framework?

(Prepaid expenses) and (Insurance expense)

The Wierzbowski Company is considering a project that will cost $30,000 and has estimated that it will generate the following cash inflows: Year 1$16,000Year 210,000Year 38,000 Assuming an interest rate of 10%, what is the net present value of this project?

-1,180 Tip: Don't forget to include not only the present values of all the cash inflows from year 1 to 3, but also the cash outflow of the initial investment.

The Dietrich Company developed the following standards for the manufacture of its product: Each unit should have 3 pounds of direct materials purchased at $8 per pound. Each unit should be produced in 2 hours at a direct labor cost of $20 per hour. Actual production was 4,000 units using 11,800 pounds of direct materials at a total cost of $96,300 and required 9,400 direct labor hours at a total cost of $182,600. What was the direct materials price variance?

-1,900

The Rodarte-Quayle Company purchased some equipment on March 1st for $16,480 and expects that it will be useful for 6 years at which time it could be sold for $2,800. The company used the equipment for the rest of the current year and an additional two years after that; if the equipment were sold for $8,000 at that point what amount of gain or loss would the company report on the sale?

-2,020 (with margin: 0) Tip: Calculate the annual depreciation as (16,480 - 2,800)/6 which is equal to 2,280 per year. Since the company purchased the equipment on March 1, it will only depreciate 1,900 that first year (2,280/12 months * 10 months) then another 2,280 for the next two years for a total of 6,460. So, when it is sold, the transaction used to the sale would include +8,000 Cash, (16,480) Equipment and +6,460 A/D on the asset side of the accounting framework and when you sum those numbers, the gain (or loss) is the result that would be entered under the R/E column of the framework. In this case the sale would result in a Loss on Sale of 2,020 (8,000-16,480+6,460) which would be entered as (2,020) or as -2020 in Canvas.

The Dietrich Company developed the following standards for the manufacture of its product: Each unit should have 3 pounds of direct materials purchased at $8 per pound. Each unit should be produced in 2 hours at a direct labor cost of $20 per hour. Actual production was 4,000 units using 11,800 pounds of direct materials at a total cost of $96,300 and required 9,400 direct labor hours at a total cost of $182,600. What was the direct labor total variance? Use a positive number to indicate a favorable variance or a negative number to indicate an unfavorable variance.

-22,600

The Fring Company is considering a project that will cost $15,000 and has estimated that it will generate the following cash inflows: Year 1 $6,000 Year 2 3,000 Year 3 3,000 Year 4 4,000 Assuming an interest rate of 6%, what is the net present value of this project?

-982 Tip: take the present value of each cash inflow (i.e. year 1, year 2, etc.) and add them all together then don't forget to subtract the initial investment as a cash outflow.

The Weyland Corporation purchased some equipment on October 1st for $40,080 and expects that it will be useful for 12 years at which time it could be sold for $4,800. The company used the equipment for the rest of the current year and an additional three years after that; if the equipment were sold for $32,000 at that point, what amount of gain or loss would the company report on the sale?

1,475 First, calculate the amount of accumulated depreciation up to the date of the sale as: (40,800-4,800)/12 = 2,940 depreciation per year so Year 1 depreciation = 2,940 x 3/12 (months used) plus three full years depreciation for a total of 9,555. The transaction to record the sale would include: +32,000 Cash, (40,080) Equipment, +9,555 A/D and all of those numbers combined equal a positive 1,475 which would indicate a gain on sale.

If you deposited $1,500 into a savings account that paid 4% interest how much would be in the account in 3 years, if you never made any additional deposits or withdrawals?

1,687

The Spunkmeyer Corporation started operations this month and had the following transactions: 1 Owners invested $10,000 to start company 6 Purchased $300 of supplies 12 Completed work for a customer worth $900; sent bill 20 Customers purchased $500 of services in advance 25 Completed work for another customer and was paid $2,200 At the end of the month, $100 of supplies were on still hand. What are the company's total assets at the end of the month?

13,400 Tip: set up a tabular analysis then enter each transaction. When finished, total each asset column and then add them all together. Using a tabular analysis should help you catch things that you otherwise may miss; for example, the transaction on the 6th actually has no impact on total assets since it would result in an increase in one asset (i.e. supplies) but an equal decrease in a different asset (i.e. cash). Using a tabular analysis should also help you avoid missing parts of a transaction or its specific impact.

Right now you are 20 years old and you have decided that you want to have $2,000,000 in the bank when you turn 65 years old. How much must you deposit each year to reach your goal if your account pays interest of 4 percent?

16,525 Since you'll be making deposits EACH year, an annuity is involved; furthermore, that annuity relates to an event that has not yet happened (i.e. your retirement), so the calculation will involve a future value of an annuity. In this case, you know the "result" of the annuity (i.e. $2,000,000) so you can divide that amount by the FVa factor to calculate the annuity amount (i.e. the amount that must be deposited each year).

You recently obtained a loan to purchase a $250,000 home; the loan terms included annual payments for a 25-year term at an interest rate of 6 percent. How much is your annual loan payment?

19,557 Tip: Since annual payments are involved, it will require using an annuity time value of money table; further, since the annuity relates to an event that is happening now (i.e. purchasing the home in the present) then the present value of annuity table should be used. So, divide the $250,000 by the appropriate PVa factor (i=6%, n=25) to determine the annuity (i.e. the annual loan payment).

The Hicks Company has a current ratio of 1.20 which it is trying to improve in order to increase its chances of obtaining short-term credit from a supplier. How many of the following actions would immediately improve its current ratio? Providing services to customers on account Buying equipment Obtaining a long-term bank loan Buying supplies

2 First, you can assume some numbers that would result in a current ratio of 1.20 (e.g. current assets of 1,200 and current liabilities of 1,000); the first answer choice (+A/R and +Revenue) would cause the numerator to increase, say by 50, but have no impact on the denominator of the calculation such that the result would be 1,250/1,000 or a current ratio of 1.25 which is better. Buying equipment (-Cash and +Equipment) would cause the numerator to decrease (since equipment is not a current asset) and have no impact on the denominator of the calculation which would result in a lower current ratio. Obtaining a long-term bank loan (+Cash and +N/P) would cause the numerator to increase and have no impact on the denominator of the calculation (since N/P is not a current liability) which would result in a higher current ratio. Buying supplies (-Cash and +Supplies) would have no impact on the ratio since the numerator of the calculation would increase and decrease by the same amount for this transaction and it would have no impact on the denominator of the calculation.

If all else were equal, which of the following interest rates would result in the largest present value?

2% This may be a bit counter intuitive, but if you look at the present value of a dollar table, the lower the interest rate, the higher the time value of money factor. That's because a lower rate would require a higher starting (i.e. present) value to reach the future amount.

The Vasquez Corporation obtained a loan with a term of three years at an interest rate of 8% to purchase some equipment and will make annual payments on the loan. If the company borrowed $16,000, what is the total amount of interest that the company will pay on the loan?

2,626 (with margin: 0) Tip: Since annual payments are involved, it will require using an annuity time value of money table; further, since the annuity relates to an event that is happening now (i.e. the loan to purchase the equipment in the present) then the present value of annuity table should be used. So, divide the $16,000 by the appropriate PVa factor (i=8%, n=3) to determine the annuity (i.e. the annual loan payment). Next, multiply that loan payment amount by 3 (since the payment is made three times and includes the interest on the loan as well as a portion of the amount borrowed). Finally, from that total subtract the amount that was originally borrowed to arrive at the total amount of interest paid on the loan.

The Drake Company has decided to invest in a project that is expected to produce the following cash flows: $6,000 in year 1, $8,000 in year 2 and $4,000 in year 3. The project would require a $14,500 investment. What is the cash payback period of the project? Round your final answer to two decimal places.

2.13 (with margin: 0) After two full years the company is almost paid back ($14,500 cash out and a total of $14,000 cash back) and in the final year of payback the company will receive $4,000 so the partial year is $500 (needed to get fully paid back) / $4,000 so cash payback equals: 2 + 500/4,000 or 2.125 which rounds to 2.13

The Goodman Corporation completed the following transactions for the month: 1 Owners begin company by investing $50,000 4 Purchased $5,000 of office equipment 6 Purchased $20,000 of inventory on account 9 Sold $17,000 of the inventory to customers for $25,000 15 Paid for 25% of the inventory purchased on the 6th 20 Purchased another $10,000 of inventory on account 24 Sold $5,000 of the inventory to customers on account for $12,000 Based on the transactions above, what is the company's accounts payable balance at the end of the month?

25,000 Tip: Use a tabular analysis to consider each transaction. After carefully reviewing them, the only transactions that impact accounts payable are those on the 6th, the 15th and the 20th.

How many of the following could appear on a balance sheet? Prepaid expenses Unearned revenue Revenue Retained earnings

3

When calculating the net present value of an investment, how many of the following cash flows require the use of a time value of money factor? Initial investment Repairs and maintenance Cash from customers Salvage value of investment

3 Although the initial investment is considered when calculating the NPV, it doesn't require the use of a time value of money table because it already is in the present value.

The Badger Company developed the following standards for the manufacture of its product: Each unit should have 2 pounds of direct materials purchased at $4.60 per pound. Each unit should be produced in 1½ hours at a direct labor cost of $18 per hour. Actual production was 4,000 units using 8,200 pounds of direct materials at a total cost of $36,200 and required 5,800 direct labor hours at a total cost of $106,000. What was the direct labor quantity variance for the company? Use a positive number to indicate a favorable variance or a negative number to indicate an unfavorable variance.

3,600 (with margin: 0) The question refers to direct labor as well as the "quantity" variance so be sure to focus on those things.

For a capital investment analysis using the net present value approach, how many of the following cash flows should be included in the decision making process? Initial investment Repairs and maintenance Cash from customers Salvage value of investment

4 The cash outflow required to obtain the project should be considered (i.e. the initial investment) as well as any operating cash flow during the project's useful life, whether it be a cash inflow (e.g. cash from customers) or a cash outflow (e.g. repairs). The final cash flow (i.e. salvage value) should be considered as well so all four of the items listed should be included in the NPV calculation.

The Pinkman Company borrowed $20,000 at an interest rate of 8% to purchase some equipment and will make annual payments on the loan. If the term of the loan is 4 years, what is the total amount of interest that the company will pay on the loan?

4,154 Since there are multiple payments, its an annuity and that annuity relates to a loan that is happening now so its a present value of an annuity. So, you take the $20,000 loan and divide by the annuity factor to get the annual payment. That payment will be used to pay back the loan plus interest so if you multiple that payment by the 4 times its made you get every dollar associate with the loan (i.e. amount borrowed and interest). Next, from that number subtract the amount borrowed (i.e. 20,000) to get the interest paid over the life of the loan.

The Frost Corporation completed the following transactions this month: 1 Purchased office supplies of $4,000 6 Purchased $3,000 of office equipment on account 12 Paid $800 on accounts payable 20 Completed $900 of consulting work for a customer that was previously paid for in advance 25 Completed consulting work for a customer; received $1,200 If the balance of accounts payable was $2,600 at the beginning of the month, what balance of accounts payable would be reported in the company's financial statements this month?

4,800 Tip: set up a tabular analysis then enter each transaction. When finished, total the A/P column.

The Beneke Corporation reported the following data: Year 3 Year 2 Year 1 Cash $6,000 $4,200 $3,800 Accounts Receivable 900 700 600 Inventory 8,900 8,200 7,800 Equipment 40,000 36,000 34,000 Accounts Payable 2,800 3,100 3,000 Notes Payable 12,400 11,500 10,300 Revenue 39,500 36,000 32,400 What is the company's current ratio for Year 2? Round your final answer to two decimal places.

4.23 Tip: the question asks for Year 2 so be sure to focus only on that year; furthermore, the current ratio only includes current assets and current liabilities. Equipment is not a current asset and Notes Payable is not a current liability.

The Hudson Corporation reported the following data: Year 3 Year 2 Year 1 Equipmen t $18,000 $16,000 $14,000 Accounts payable 2,300 800 1,000 Cash 8,900 9,300 8,200 Supplies 1,200 1,400 1,700 Accounts receivable600 400 200 Notes payable 10,300 12,100 14,700 Inventory 2,000 2,200 2,400 What is the company's debt to assets ratio for Year 3?

41 Tip: the debt to assets ratio is total liabilities / total assets.

The White Company purchased $400 of supplies during the month, had supplies on hand of $200 at the beginning of the month and had $100 worth of supplies on hand at the end of the month. The income statement for that month would report supplies expense of?

500 If the company purchased $400 of supplies which are added to the $200 it started with then, it'd have $600 available. So, if only $100 are left at the end of the period then it must have used $500 in supplies during the period.

The Badger Company developed the following standards for the manufacture of its product: Each unit should have 2 pounds of direct materials purchased at $4.60 per pound. Each unit should be produced in 1½ hours at a direct labor cost of $18 per hour. Actual production was 4,000 units using 8,200 pounds of direct materials at a total cost of $36,200 and required 5,800 direct labor hours at a total cost of $106,000. What was the direct materials total variance for the company? Use a positive number to indicate a favorable variance or a negative number to indicate an unfavorable variance.

600

The accounting records of the Schader Company showed the following: Beginning prepaid expenses account balance $2,000 Amount of insurance purchased during the year $5,000 Ending prepaid expenses account balance $1,000 What was the amount of prepaid expense (e.g. insurance) that expired during the year?

6000

The Gorman Corporation purchased a new oven for its commercial kitchen on August 1st for $14,000 and expects to use it for 8 years at which time it can be sold for an estimated $2,000. How much depreciation expense would be reported in the company's year-end financial statements?

625 (with margin: 0) Tip: The formula for annual depreciation is (Cost-Salvage value) / Useful life. However, since the equipment was purchased in August, you need to adjust for the number of months actually used in the first calendar year.

The Beneke Corporation reported the following data: Year 3 Year 2 Year 1 Sales $39,500 $36,000 $32,400 COGS 30,500 28,400 24,600 For a horizontal analysis, what is the percent change in sales for year 3?

9.7

If you deposited $800 into a savings account that pays 4% interest, how much would be in the account in four years assuming you never made any additional deposits or withdrawals?

936

The Apone Corporation manufactures metal wagons. In a recent budget performance report, there was a favorable quantity variance related to metal. Which of the following is the most likely explanation?

A precision laser cutter for sheet metal was installed at the factory.

Which of the following statements is false? An annuity is a series of unequal payments. If borrowed or invested, money grows in value over time. Present value can be found if the interest rate, the number of periods and the future value are known. Interest is the payment to the owner of an asset for its use by a borrower. All of the above are true

An annuity is a series of unequal payments.

Heisenberg Café sells a variety of sandwiches and snacks. In a recent cost variance report, there was an unfavorable price variance related to bread. Which of the following may help explain that variance?

Bread was purchased from a different supplier than the one normally used. The only unit data that ever goes into those calculations is actual number of units produced so the first answer choice wouldn't impact it at all and the last two answer choices would impact quantity (i.e. usage) but not what was paid for the bread.

Below are the comparative current ratios of two companies: Year 3 Year 2 Year 1 Crowe Corp. 0.98 0.86 0.82 Burke, Inc. 1.10 1.14 1.20 Based on this information,

Crowe's current ratio is worse than Burke's, but is improving. Tip: for the current ratio a higher number is better because it indicates more current assets relative to current liabilities.

Which of the following is not a measure of liquidity?

Debt to assets ratio

Which of the following ratios would a bank most likely use to evaluate a loan applicant?

Debt to assets ratio Banks are mostly concerned with a company's solvency (i.e. its ability to manage long-term debt like a bank loan) and of the ratios listed the debt to assets ratio is the only one that helps measure solvency.

A customer placed an order with the Huell Company on November 18th; the order was shipped on December 1st. The customer sent payment for the order on December 3rd which was received by Huell on December 5th and deposited in the company's bank account on December 8th. According to the revenue recognition principle when should Huell record the revenue associated with the order?

December 1st According to the revenue recognition principle, revenue can be recorded as soon as the company's "work" is done which in this case is the product being shipped to the customer on December 1st. If it were a service company like a consulting firm, then revenue should be recorded as soon as the service has been provided.

Below are the comparative days in inventory ratios of two companies: Year 3 Year 2 Year 1 Boetticher's Landscaping, Inc 1.6 1.3 1.2 Delcavoli's Landscaping, Inc. 1.7 1.8 1.9 Based on this information,

Delcavoli's current days in inventory is worse than Boetticher's, but is improving. Since days in inventory measures how fast cash can be generated from selling inventory, the faster the better. So, a lower ratio is better than a higher ratio because it indicates that fewer days are needed to generate cash.

Which of the following statements is true?

Employees should be allowed to respond to every item on a performance report. The second answer choice mentions "every" cost related to an employee's job; however, some costs may be related to a particular job, but not something that employee could actually manage such as factory rent for a factory worker or possibly even a factory manager.

All of the following could cause a standard cost budget variance except

Fewer units were sold than originally anticipated. Tip: the calculations for standard cost variances are based on how many units were actually sold (i.e. what SHOULD it have cost to make the number of units they ACTUALLY sold).

Which of the following is a measure of profitability? Current ratio Days in inventory Debt to assets ratio Average collection period

None of the above

The Newt Company recently sold some equipment previously used in its operations; the transaction to record the sale would include +Cash and +Revenue (Cash) and +Equipment (Inventory) and (Cost of Goods Sold) Two of the above None of the above

None of the above The transaction would include: +Cash, (Equipment), +A/D as well as a gain or loss on sale.

If a company sells a gift card, the transaction used to record it would include Cost of goods sold Revenues Notes payable Inventory expense None of the above

None of the above The transaction would be +Cash and +Unearned Revenue and neither of those is listed as an answer choice.

Which of the following statements is true? The cash payback method always takes an investment's salvage value into account. The cash payback method takes time value of money concepts into account. The net present value method does not take time value of money into account. The cash payback method is a more accurate approach as compared to the net present value method. None of the above

None of the above Tip: The first statement is false because if the cash outflow for the initial investment were paid back before the investment was eventually sold then the salvage value would be ignored. Likewise, any cash flows after the payback period are ignored and that is why it is a less accurate method than the net present value method.

Recently the Ritter Company has been having problems. As a result, its financial situation has deteriorated. Ritter approached the First National Bank for a badly needed loan, but the loan officer insisted that the current ratio (now 0.50) be improved to at least 0.80 before the bank would even consider granting the loan. Which of the following actions would do the most to improve the ratio in the short run?

Purchasing additional inventory on account. First, you can assume some numbers that would result in a current ratio of 0.50 (e.g. current assets of 500 and current liabilities of 1,000); the first answer choice would cause the numerator and denominator of the calculation to go down, say by 50, but the impact would be different such that the result would be 450/950 or a current ratio of 0.47 which is worse. For purchasing inventory on account, the transaction would be +Inventory and +A/P so say the amount is $50 that would result in current assets of 550 and current liabilities of 1,050 so the resulting current ratio would be 0.52 which is an increase.

The purchasing agent of the Leuwen Company acquired some raw materials at a bargain price, even though he knew that their quality was lower than that of the materials customarily used. This action resulted in a favorable materials price variance and may also cause a(n)

Unfavorable materials "quantity" variance. Since the materials are of a lower quality it may take more of them to complete the production process as some may have to be discarded or more of them applied.

The Salamanca Company had budgeted sales of $52,000, sales related costs of $14,000 and production costs of $34,000. The company's actual results included sales of $45,000, sales related costs of $ 8,000 and production costs of $32,000. Overall, the company performed

above expectations Since the question relates to the entire company (i.e. not just sales or just production), its all the favorable variances, combined with all the unfavorable variances and overall, you get a favorable result.

Depreciation expense is necessary to

allocate the cost of an asset over its useful life.

Depreciation is necessary because

equipment gets consumed over time.

In a budget performance report, if a budgeted amount is greater than an actual amount then

cannot be determined without additional information.

Which of the following would most likely have the least number of things to manage?

cost center Cost centers only manage costs; whereas, profit centers manage costs and revenues and investment center manage both of those plus the investment of assets.

In a tabular analysis, which of the following steps would happen first?

data for each row would be entered

Which of the following costs related to a computer would be considered a capital expenditure?

external hard drive To be a capital expenditure, it must make the asset last longer or work better and an external hard drive would allow for more data storage; whereas, the other answer choices are more routine in nature and would not really improve the computer's performance or useful life.

Being over budget

is sometimes bad. Tip: If actual revenue is over budget that would be favorable; whereas, if actual expenses were over budget that would be unfavorable.

Which of the following ratios would an investor most likely use to evaluate a potential investment in a company?

return on assets Based on class discussion, an investor would most likely be interested in something that could help assess a company's stock potential. Of the three broad measures of ratios, the profitability ratios would do so since they help evaluate a company's operational performance. Whereas, the liquidity ratios would be helpful to a supplier to make a short-term loan decision and solvency ratios would helpful to a bank to make a long-term loan decision.