1) Stockham Valve Company produces a mechanical valve used in water systems.
Three years ago the company introduced an electronic version of the valve. Sales of the
mechanical model have steadily declined, and the company will report a loss on the
product this year, as follows:
If production of the mechanical valve is discontinued, product-level costs will be
eliminated but facility level and corporate costs would not be affected.
Required:
1) Prepare a quantitative analysis that indicates whether the valve should be
discontinued.
2) What qualitative factors should be considered in this decision?
2) The following events apply to San Antonio Company for 2012 .
1) Issued stock for $14,000 cash.
2) On May 1, paid $6,000 for one year’s rent in advance.
3) Purchased on account $500 of supplies to be used in the business.
4) Performed services of $8,000 and received cash from customers.
5) At December 31, an inventory of supplies showed that $60 of supplies were still
unused.
6) At December 31, adjusted the records for the expired rent.
Required:
Draw an accounting equation and record the effects of the above events under the
appropriate account headings. Calculate balance (ending total) for each account.
Accounting Equation
_____________________________________________________________
Event
No.
1) ___________________________________________________________
2) ___________________________________________________________
3) ___________________________________________________________
4) ___________________________________________________________
5) ___________________________________________________________
6) ___________________________________________________________
3) Define the terms FIFO and LIFO.
4) Indicate whether each of the following statements is true or false:
1>The purpose of postaudits is to improve a company’s capital investment decision
process
2>The postaudit process uses expected cash flows and the company’s cost of capital
3>The postaudit of a capital investment project should be made using the same
analytical technique that was used in deciding to make the investment
4>Having good estimates of future cash flows is important in making capital
investment decisions
5>A postaudit should be conducted at the time a capital investment is purchased
5) Indicate whether each of the following statements about accounting principles is true
or false.
1>Accountants rely on the historical cost concept to help ensure the reliability of
accounting information
2>A business’s income is measured for a period of time called the accounting period
3>If a person owns two businesses, each of the businesses would be treated as a
separate reporting entity
4>Most of a business’s assets are reported at their current market value
5>Financial statements are prepared from the perspective of what happens to a
business’s stockholders
6) What level of knowledge of business is assumed by current financial reporting
standards?
7) Indicate which of the budgets and pro forma financial statements the given item
appears on by placing X’s in the appropriate column or columns.
Budgeted utilities used in company’s stores.
8) Custom Quilters makes decorative comforters, quilted garments, and other products
in a small sewing factory. In 2012, the company expects to make 2,000 comforters.
Indicate whether the given cost is direct or indirect with respect to the comforters, and
also whether it is fixed or variable with respect to the number of comforters. Indicate
your answers by placing X’s in the appropriate columns.
9) Indicate how each event affects the elements of financial statements. Use the
following letters to record your answer in the box shown below each element. You do
not need to enter amounts.
Haltom Co. uses the allowance method to account for uncollectible accounts. Show
how the adjusting entry to recognize uncollectible accounts expense would affect the
elements of Haltom’s financial statements.