1) Halley Company has just received a special order for 1,000 deck chairs. Halley has
sufficient idle capacity to accept the order. Indicate whether the given cost is a sunk
cost, opportunity cost, relevant or not relevant to the decision to accept the special
order, variable or fixed, by placing X’s below the headings as appropriate. A variable
cost is one that varies with the number of chairs that Halley makes.
2) Hart Company currently produces a component that it uses in making some of its
products. Hart has calculated the following costs for making the part:
Hart is considering outsourcing the component. A supplier has offered to sell the
component to Hart for $54 each. Hart needs 10,000 units each year.
Required:
Should Hart outsource the component? Support your answer with appropriate
computations.
3) 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.
On December 1, 2012, Hays Company prepaid rent for three months in the amount of
$1,500. On December 31, Hays prepared an adjusting entry to recognize $500 of rent
expense. Show the effect of the adjusting entry.
4) Give an example of a transaction that decreases a liability and increases equity.
5) Harker Company manufactures DVD players and other similar electronic products.
Indicate whether the cost is a product cost or period (selling, general, and
administrative) cost AND whether its cost behavior is fixed, variable, or mixed by
placing X’s in the appropriate boxes. As an example, commissions paid to sales staff
would be classified as a period cost and variable.
Utilities cost for factory; amount includes electricity for running machines and costs for
heating and lights
6) Indicate whether each of the following statements about accepting credit cards from
customers is true or false.
1>A benefit of accepting credit cards is that there is no associated cost to the merchant
2>A benefit of accepting credit cards is that increased sales may be generated
3>The entry to record a credit card sale increases total assets and increases total equity
4>The income statement is not affected when the receipt of cash from the credit card
company is recorded
5>When recording the collection of cash from the credit card company, the entry acts to
increase cash and increase revenue
7) On December 27, 2012, Terrell Corp. signed an agreement for a line of credit with
the Barnett Bank. Under the agreement, Terrell can borrow up to $50,000 at any time
during the following year. Terrell will make any borrowings or paybacks on the first
day of a month and make interest payments on the last day of any month when a
balance exists. The annual interest rate will be the bank’s prime rate plus 1% and will be
applied to the outstanding monthly balance. The following table gives the appropriate
information for the first three months of 2013 .
Determine the amount of interest to be paid at the end of each of the three months.
8) What is a segment elimination decision? Under what conditions should a company
decide to eliminate a segment?
9) Reddy Company commenced operations in 2012 . The company provided the
following information for the year ended December 31, 2012 .
Required:
1) Prepare a schedule of cost of goods manufactured and sold for the year ended
December 31, 2012 .
2) Prepare an income statement for the year ended December 31, 2012 .
