1) The present value of the periodic bond interest payments is the value today of the
amount of interest to be received at the end of each interest period.
2) The budgeting process is used to effectively communicate planned expectations
regarding profits and expenses to the entire organization.
3) The cash budget summarizes future plans for acquisition of fixed assets.
4) When you are interpreting financial ratios, it is useful to compare a company’s ratios
to some form of standard.
5) Conversion costs are generally added evenly throughout the process.
6) Materials are transferred from the storeroom to the factory in response to materials
requisitions.
7) Most companies who have several bank accounts, petty cash, and cash on hand,
would list each separately on the balance sheet.
8) The financial statements measure precisely the financial condition and results of
operations of a business.
9) Zorn Co. budgeted $300,000 of factory overhead cost for the coming year. Its
plantwide allocation base, machine hours, is budgeted at 50,000 hours. Budgeted units
to be produced are 100,000 units. Zorn’s plantwide factory overhead rate is $6.00 per
machine hour.
10) The use of a separate payroll bank account is not an advantageous control, because
it creates more complexity in reconciliation functions for a company and invites theft.
11) Under absorption costing, the cost of finished goods includes only direct materials,
direct labor, and variable factory overhead.
12) In the job order system, the finished goods account is the controlling account for the
factory overhead ledger.
13) Why would a bank require a company to maintain a compensating balance?
14) Materials used by the Layton Company Division 1 are currently purchased from
outside supplier at $58 per unit. Division 2 is able to supply Division 1 with 22,000
units at a variable cost of $46 per unit. The two divisions have recently negotiated a
transfer price of $50 per unit for the 20,000 units.
Required:
By how much will each divisions income increase as a result of this transfer?
15) List at least three things that indicate a receivable may be uncollectible.
16) The Pikes Peak Leather Company manufactures leather handbags (H) and
moccasins (M). The company has been using the factory overhead rate method but has
decided to evaluate the activity based costing to allocate factory overhead. The factory
overhead estimated per unit together with direct materials and direct labor will help
determine selling prices.
Calculate the amount of factory overhead to be allocated to each unit using activity
based costing. The factory plans to produce 60,000 handbags, and 40,000 moccasins.
17) The Anazi Leather Company manufactures leather handbags (H) and moccasins
(M). The company has been using the factory overhead rate method but has decided to
evaluate the multiple production department factory overhead rate to allocate factory
overhead. The factory overhead estimated per unit together with direct materials and
direct labor will help determine selling prices.
Handbags = 60,000 units, 3 hours of direct labor
Moccasins= 40,000 units, 2 hours of direct labor
Total Budgeted factory overhead cost = $360,000
The company has two different production departments: Cutting and Sewing. The
cutting department has a factory overhead budget of $80,000. Each unit will require 1
direct labor hour or a total of 100,000 direct labor hours.
The Sewing Departments estimates factory overhead in the amount of $280,000.
Handbags require 2 hours of sewing time and Moccasins require 1 hour for a total of
160,000 labor hours.
Calculate the total factory overhead to be allocated to each product using direct labor
hours.
18) Gallant Company reported net income of $2,500,000. The income statement
included one extraordinary item: a $500,000 gain from condemnation of land and a
$200,000 loss on discontinued operations, both after applicable income tax.
There were 100,000 shares of $10 par common stock and 40,000 shares 4% preferred
stock of $100 par outstanding throughout the current year.
Required: Prepare the earnings per share section of Gallant Companys income
statement.
