BYP 1-6 COMMUNICATION ACTIVITY
Ms. Shelly Phillips
President
Phillips Company
Dear Shelly:
one for you.
The income statement your assistant accountant prepared was not correct for
two primary reasons. First, product costs were not separated from selling and
administrative expenses. Second, and more importantly, the reported net loss
did not reflect changes in inventories. This had the effect of treating these
Net loss as reported …………………………………………….. $(23,000)
Increase (decrease) in inventories
Raw materials ($29,000 – $18,000) ………………….. $11,000
produce cost of goods manufactured of $577,800.
The change in finished goods inventories is reported in the income
statement. Notice that the change of $15,000 is subtracted from cost of
goods manufactured of $577,800 to produce cost of goods sold of $562,800.
BYP 1-6 (Continued)
I have also modified the form of the income statement to recognize the dis–
Sincerely,
BYP 1-7 ETHICS CASE
(a) The stakeholders in this situation are:
The users of Newton Industries’ financial statements.
Steve Morgan, controller.
The vice-president of finance.
The president of Newton Industries.
(c) Ethically, the management of Newton Industries should be trying to report
the financial condition and results of operations as fairly as possible;
that is, in accordance with GAAP. Steve should inform management
what is acceptable accounting and what is not. The basic concept to
with specific revenues.
BYP 1-8 ALL ABOUT YOU
may represent common responses.
(a) Individuals must often make purchase decisions which involve choosing
between an item that has a more expensive initial purchase price, but
is expected to either last longer, or provides some form of cost savings.
The question that the individual faces is whether the cost savings or
(b) In order to increase control over their financial situation and reduce
the probability of financial hardship, all people should prepare personal
important distractions.
(d) Capital budgeting involves financial evaluation of long–term assets. Compa–
nies routinely make capital budgeting decisions, but so do individuals.
The purchase of a home or car is a decision that has implications for your
makes good economic sense.
BYP 1-9 CONSIDERING YOUR COSTS AND BENEFITS
your firm at risk by not remaining competitive. Perhaps one solution would
be to outsource the most basic tasks, and then provide training to the six
employees so they can perform higher-skilled services such as tax planning.