1) Indicate whether each of the following statements about responsibility centers is true
or false.
1>A responsibility center controls identifiable revenue or expense items
2> The manager of a profit center is evaluated based primarily on his/her ability to
control costs
3>To be designated as a responsibility center, a department must be a large segment of
an organization
4>Cost centers are commonly found at all levels of the organization chart
5>A cost center generates revenues and expenses
2) Assume that a business seeks to allocate factory rent to several departments that
occupy the factory. What cost driver could be used here?
3) Present value factors
The present value of an annuity of $1 at 8% has a factor for 3 periods of 2.577097; for 5
periods at 8% the factor is 3.992710 . For 10% at 5 periods the factor is 3.790787. For
12% at 5 periods the factor is 3.604776 .
Denver Company is considering the purchase of equipment that would cost $40,000 and
offer annual cash inflows of $10,500 over its useful life of 5 years. Assuming a required
rate of return of 8%, calculate the net present value. Would you recommend that Denver
make this investment?
4) Give four examples of costs that would be accounted for as manufacturing overhead
costs.
5) The following events occurred for Rez Company during its first year in operation:
1> issued stock to investors for $35,000 cash
2> borrowed $15,000 cash from the local bank
3> provided services to its customers and received $22,000 cash
4> paid expenses of $18,000
5> paid $12,000 cash for land
6> paid dividend of $2,000 to stockholders
7> repaid $2,000 of the loan listed in item 2
Required:
Show the effects of the above transactions on the accounting equation, below. Include
dollar amounts of increases and decreases. The first is done for you. After entering all
the events, calculate the total amounts of assets, liabilities, and equity at the end of the
year.
6) 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 31, 2012, Sweetwater Co. paid cash for interest on bonds it had issued on
January 1, 2012 . Indicate the effects of the payment of interest.
7) The Clock Builder makes grandfather clock kits that it sells to hobbyists who then
assemble and finish the clocks. The company has the capacity to make 5,000 of the kits,
and its current volume is 3,000 kits. The costs of a clock kit are $500 for unit-level
costs and $250 for an allocation of facility-level overhead. The normal selling price is
$950. The Clock Builder has received a special order for 800 clock kits at a price of
$700 each.
Required:
Should The Clock Builder accept the special order? Support your answer with
appropriate computations.
8) Indicate whether each of the following statements is true or false.
1>The amount recorded in a Trademark account includes the cost to develop the
trademark and to defend it
2>GAAP requires that research and development costs be capitalized and allocated over
a reasonable period of time
3>Intangible assets generally are depreciated using the double declining-balance
method
4>A trademark has an indefinite legal lifetime
5>The entry to record the amortization of a patent includes recognition of an expense
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.
On December 31, 2012, Falls Company recognized the accrued interest revenue on a
one-year note receivable dated October 1, 2012 . Show the effect of the accrual of
interest on Falls’ financial statements.