1) Indicate which of the following items is added to or subtracted from a company’s
unadjusted book balance to calculate the true cash balance in preparing a bank
reconciliation. Place a + by those items that are added to the book balance, a – by those
items that are subtracted, and NA by items that are not added to or subtracted from the
book balance.
2) Indicate whether each of the following statements is true or false.
1>For a department in a retail store, cost of goods sold is an indirect cost
2>Estimated cost data must often be used in making decisions because actual cost
information is not yet available
3>Direct costs are also called overhead costs
4>A direct cost must be allocated to a cost object
5>Managers often accumulate both estimated and actual cost data for the same cost
object
3) As of December 31, 2012, Walton Corporation had a current ratio of 1.84, quick ratio
of 1.45, and working capital of $18,000. The company uses a perpetual inventory
system and sells merchandise for more than it cost. Indicate how the given transaction,
if it occurred in January 2013, would affect Walton’s current ratio, quick ratio, and
working capital. Use a + for an increase, a – for a decrease, and 0 for no effect.
Walton collected $5,200 of accounts receivable
4) For internal control purposes, what is meant by ‘separation of duties?”
5) Powertime, Inc., produces and sells electric lawn mowers for $250 each. The
variable costs of each mower total $160 while total monthly fixed costs are $22,500.
Current monthly sales are $100,000. The company is considering a proposal that will
increase the selling price by 10%, increase total fixed costs by 10% and increase unit
sales to 500 units per month.
Required:
1) Compute the company’s current break-even point in units.
2) What is the company’s current margin of safety in units, dollars, and percentage?
3) Compute the company’s margin of safety in units assuming the proposal is accepted.
4) Compute the increase or decrease in profit assuming the proposal is accepted.
6) Classifying costs into one of four hierarchical levels can facilitate the identification
of relevant costs. Place an “X” in the appropriate column to classify the following costs
as Unit-level, Batch-level, Product-level, and Facility level.
7) 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.
Calvert Company sold merchandise for $1,700 cash and collected from the customer
sales tax at a rate of 5%. In answering, disregard the effect of cost of goods sold.
8) What information does an inventory purchases budget provide for pro forma
financial statements?
9) Rugh Company has been sued by two customers who claim to have been injured by
products Rugh sold. The two lawsuits are unrelated to each other. For lawsuit #1, Rugh
expects to lose the suit, and its attorney estimates that the amount of the damages
awarded to the customer will be $500,000. For lawsuit #2, Rugh believes that loss of
the suit is possible but not probable. The attorney thinks the amount of the damages
may be $15,000.
Required:
Describe the correct accounting treatment for lawsuit #1 and lawsuit #2.