Please read through this unit's list of terms and concepts provided in the Key Terms module of this unit. You should look for these terms as you read the assigned textbook chapters. The terms and concepts are important for understanding the material. Do not look at each word as a separate entity that stands alone. Try to understand it in the context of the chapters' content. You should write out your own definitions for each term.
For this unit, please submit five of these term definitions for grading. A few words of caution: writing out the definitions is an important exercise, even the ones you don't have to submit. For this assignment do not simply copy a one-sentence definition of the term. Instead, provide a definition which relates to context and/or examples to best demonstrate your understanding.
Money markets Negotiable CD
Bond equivalent yield
Discount yield
Opportunity cost
Liquidity
Treasury Bills
LIBOR
Default risk free
Banker's acceptance
Repo and reverse repurchase agreement
Eurodollar deposits
Term vs serial bonds
Mortgage bonds
Convertible and callable bonds
Call premium
Second mortgages
Lien
Syndicate
Originating house
Preemptive rights
Red herring proxy
Secondary stock markets
Net long (short) in a currency
Open position
Safe haven
Purchasing power parity
Interest rate parity theorem (IRPT)
Open interest
Option
American option
European option
Call option
Put option
Intrinsic value of an option
Time value of an option
Foreign exchange rates
Dollarization
Foreign exchange risk
Currency appreciation
Derivative security
Derivative security markets
Spot contract
Forward contract
Futures contract
Marked to market
Initial margin
Maintenance margin
Floor broker
In: Accounting
Chief executive officer compensation can be a material amount and is often scrutinized by regulators, analysts, competitors, and investors. For CEOs of publicly traded companies, compensation can consist of salary, bonus, stock option grants, or other stock awards that can be restricted in terms of how long the officers and directors are required to hold the stock. Publicly traded companies are required by the Securities and Exchange Commission to provide disclosures about the components of executive compensation in the company’s annual proxy statement.
How would the auditor test the fair value of the stock option/stock appreciation rights (SAR)?
Why are the presentation and disclosure-related audit objectives so important for stock-based compensation?
In: Accounting
The Watts Company is a publicly traded corporation that produces different types of commercial food processors. My name is Alan Smith and I have worked for this company for the last ten years in the controller’s office. I was both an accounting and finance major in university. The company currently produces 300 products and does not anticipate any new products coming out over the next three years. I have previously mentioned to my superiors that it is not appropriate for our firm to use a traditional accounting system (where overhead costs are allocated across products at a rate of $100 per direct labor hour) when different products require different amounts of indirect overhead resources. For example, under the traditional system all costs associated with testing of products for quality assurance purposes are part of overhead costs and therefore allocated across products based on direct labor hours. Yet, some of our products require as much as 5 hours of testing whereas some products require less than 1 minute of testing with no connection to direct labor hours. Given that traditional costing systems result in significant cost distortions when determining products costs and given that the firm now has revenues of over $100 million a year, Watts has decided to adopt activity based costing over the next year or two.
Watts’s management has hired Deloitte Consulting to help us implement activity based costing. I will be acting as the liaison between our firm and Deloitte. As part of the initial implementation phase, I have asked Deloitte to derive the costs and product margins associated with two of our products, Classic and Artisan, so that these costs and product margins could be compared with the costs and product margins under our current traditional accounting system. I picked these products since Watts management believe they have very different demands on indirect overhead resources. Further, Classic is sold in large quantities whereas Artisan is sold in small quantities and traditional accounting systems can cause large cost distortions in different directions for products sold in large and small quantities.
Current information from our existing system on a per unit basis is shown in Exhibit 1.
Exhibit 1
Classic |
Artisan |
|
Direct material |
$120 |
$200 |
Direct labor hours |
1.2 |
1.5 |
Direct labor wage rate per hour |
$20 |
$20 |
Sales price per unit |
$300 |
$450 |
My staff has identified for Deloitte five activity cost pools. Information on those cost pools and the related activity measures are provided in Exhibit 2.
Exhibit 2
Total Costs |
Allocation Base |
Level of Allocation Base |
|
Equipment setups |
$24,000,000 |
number of setups |
60,000 |
Purchase orders |
$72,000,000 |
number of purchase orders |
300,000 |
Machining |
$25,000,000 |
number of machine hours |
1,250,000 |
Testing |
$42,000,000 |
number of testing hours |
600,000 |
Packaging and shipping |
$50,000,000 |
number of containers |
1,000,000 |
Although fixed costs are lumped in with variable costs across the five different cost pools, I am aware that machining related costs consists almost exclusively of depreciation costs. Hence, with respect to all questions asked in this case, machining costs will be treated as entirely fixed with respect to machine hours. Each machine is used in the production of multiple product lines. The resale value of machines is only affected by the passage of time and not by how much they are used in a given year.
In all questions asked in this case, the firm will assume that costs associated with equipment setups, purchase orders, testing, and packaging & shipping are variable with respect to their respective activity measures. Currently, we believe our assumptions on cost behavior patterns are quite reasonable.
All products are produced in batches, where the size of a batch differs across products. For example, if we produce 80 units of a product in batch sizes of 40, then the product will be produced in two batches. An equipment setup must be performed before producing each batch of a product. Hence, in the example above, two equipment setups would be performed. Units of product are packaged in containers and sent to distributors.
Production volumes are set equal to sales volumes since the company only produces products that they have orders for. Consequently, the firm never has a beginning or ending work in process inventory, and it does not have a beginning or ending finished goods inventory.
Further information on our two products is provided in Exhibit 3
Exhibit 3
Classic |
Artisan |
|
annual sales and production in units |
400,000 |
50,000 |
number of units per batch |
400 |
80 |
number of purchase orders |
600 |
300 |
number of machine hours per unit |
0.4 |
2 |
total number of testing hours |
8,000 |
100,000 |
total number of containers |
5,000 |
20,000 |
REQUIRED:
1. (20 Points) Prepare an income statement for Classic and an income statement for Artisan using the traditional accounting system where overhead is applied at a rate of $100 per direct labor hour. (For simplicity, SG&A expenses for the firm are not included in the income statement for the two products.) The income statements should be prepared on a total basis and then show the average net operating income per unit using the following template for guidance:
Classic Artisan
Sales $$$ $$$
Direct materials $$$ $$$
Direct labor $$$ $$$
Manufacturing overhead $$$ $$$
Total Costs $$$ $$$
Net operating income $$$ $$$
Average net operating income
per unit $$$ $$$
2. (20 Points) Calculate the five activity rates under activity based costing.
In: Accounting
Problem 11-14 Measures of Internal Business Process Performance [LO11-3]
DataSpan, Inc., automated its plant at the start of the current year and installed a flexible manufacturing system. The company is also evaluating its suppliers and moving toward Lean Production. Many adjustment problems have been encountered, including problems relating to performance measurement. After much study, the company has decided to use the performance measures below, and it has gathered data relating to these measures for the first four months of operations.
Month | ||||||||
1 | 2 | 3 | 4 | |||||
Throughput time (days) | ? | ? | ? | ? | ||||
Delivery cycle time (days) | ? | ? | ? | ? | ||||
Manufacturing cycle efficiency (MCE) | ? | ? | ? | ? | ||||
Percentage of on-time deliveries | 75 | % | 70 | % | 67 | % | 64 | % |
Total sales (units) | 2770 | 2651 | 2515 | 2420 | ||||
Management has asked for your help in computing throughput time, delivery cycle time, and MCE. The following average times have been logged over the last four months:
Average per Month (in days) | |||||||||
1 | 2 | 3 | 4 | ||||||
Move time per unit | 0.8 | 0.4 | 0.5 | 0.5 | |||||
Process time per unit | 3.9 | 3.7 | 3.5 | 3.3 | |||||
Wait time per order before start of production | 16.0 | 17.5 | 21.0 | 22.6 | |||||
Queue time per unit | 5.0 | 5.9 | 6.9 | 8.0 | |||||
Inspection time per unit | 0.4 | 0.6 | 0.6 | 0.4 | |||||
Required:
1-a. Compute the throughput time for each month.
1-b. Compute the delivery cycle time for each month.
1-c. Compute the manufacturing cycle efficiency (MCE) for each month.
2. Evaluate the company’s performance over the last four months.
3-a. Refer to the move time, process time, and so forth, given for month 4. Assume that in month 5 the move time, process time, and so forth, are the same as in month 4, except that through the use of Lean Production the company is able to completely eliminate the queue time during production. Compute the new throughput time and MCE.
3-b. Refer to the move time, process time, and so forth, given for month 4. Assume in month 6 that the move time, process time, and so forth, are again the same as in month 4, except that the company is able to completely eliminate both the queue time during production and the inspection time. Compute the new throughput time and MCE.
In: Accounting
In Lehman Brothers' case, why should E&Y have considered the Repo 105 transactions to be material and required these to be disclosed before signing off on the audit? What E&Y should have done regarding the accounting of Repo 105 transactions?
In: Accounting
Raleigh Department Store uses the conventional retail method for
the year ended December 31, 2016. Available information
follows:
Cost | Retail | |||||
Gross purchases | $ | 177,030 | $ | 410,000 | ||
Purchase returns | 5,700 | 28,000 | ||||
Purchase discounts | 4,200 | |||||
Gross sales | 345,000 | |||||
Sales returns | 5,500 | |||||
Employee discounts | 3,000 | |||||
Freight-in | 29,500 | |||||
Net markups | 17,000 | |||||
Net markdowns | 28,000 | |||||
Sales to employees are recorded net of discounts.
Required:
1. Estimate ending inventory for 2016 using the
conventional retail method.
2. Estimate ending inventory for 2016 assuming
Raleigh Department Store used the LIFO retail method.
3. Assume Raleigh Department Store adopts the
dollar-value LIFO retail method on January 1, 2017. Estimating
ending inventory for 2017 and 2018.
In: Accounting
Below is an alphabetical listing of all the accounts for T.O.'s Dance studio on 12/31/11. Assume all adjustments have been made and all balances are "normal." Accounts payable 3,000 Accounts receivable 8,000 accumulated depreciation-Equip. 3,000 Contributed capital 2,000 Cash 5,000 Depreciation expense 1,000 Dividends declared 1,000 Equipment 9,000 Income Tax expense 1,000 Income Taxes Payable 1,000 Service Revenue 18,000 Rent Expense 2,000 Retained Earnings(as of 1/1/11) 3,000 Unearned Revenue 1,000 wage expenses 4,000. Now prepare an Income Statement in good form for T.O.'s Dance Studio. Also prepare closing entries for T.O.'s Dance studio, Prepare The Statement of Retained Earnings for T.O.'s Dance Studio , & lastly Prepare the Classified Balance Sheet for T.O.'s Dance Studio.
In: Accounting
Forester Company has five products in its inventory. Information
about the December 31, 2018, inventory follows.
Product | Quantity | Unit Cost |
Unit Replacement Cost |
Unit Selling Price |
|||||||||||||
A | 1,000 | $ | 26 | $ | 28 | $ | 32 | ||||||||||
B | 500 | 31 | 27 | 34 | |||||||||||||
C | 900 | 19 | 18 | 24 | |||||||||||||
D | 900 | 23 | 20 | 22 | |||||||||||||
E | 800 | 30 | 28 | 29 | |||||||||||||
The cost to sell for each product consists of a 10 percent sales
commission. The normal profit percentage for each product is 35
percent of the selling price.
Required:
1. Determine the carrying value of inventory at
December 31, 2018, assuming the lower of cost or market (LCM) rule
is applied to individual products.
2a. Determine the carrying value of inventory at
December 31, 2018, assuming the LCM rule is applied to the entire
inventory.
2b. Assuming inventory write-downs are usual
business practice for Forester, record any necessary year-end
adjusting entry.
In: Accounting
1. Which of the following statement is FALSE?
a. The difference between the static budget and the flexible budget is the sale-volume variance.
b. The difference between allocated and budgeted overhead is the production volume variance
c. The amount of variable overhead allocated equals toe flexible budget amount
d. The production volume variance arises for both fixed and variable overhead cost
2.Flexible-budget variance measure:
a. What the costs and revenues should have been for the budgeted number of the outputs.
b. the differences between budgeted expenditures and actual expenditure for the budgeted number of outputs
c.the difference between budgeted and actual variable costs.
d. the difference between expected expenditures for the actual number of outputs and the actual expenditures for the actual number of outputs
e. what the costs and revenues should have been for the static budgeted number of outputs
In: Accounting
Almaden Hardware Store sells two product categories, tools and
paint products. Information pertaining to its 2018 year-end
inventory is as follows:
Inventory, by Product Category |
Quantity | Per Unit Cost |
Net Realizable Value | ||||||||
Tools: | |||||||||||
Hammers | 100 | $ | 5.90 | $ | 6.40 | ||||||
Saws | 290 | 10.90 | 9.90 | ||||||||
Screwdrivers | 390 | 2.90 | 3.50 | ||||||||
Paint products: | |||||||||||
1-gallon cans | 590 | 6.90 | 5.90 | ||||||||
Paint brushes | 100 | 4.90 | 5.40 | ||||||||
Required:
1. Determine the carrying value of inventory at
year-end, assuming the lower of cost or net realizable value
(LCNRV) rule is applied to (a) individual products, (b) product
categories, and (c) total inventory.
2. Assuming that the company reports an inventory
write-down as a line item in the income statement, for each of the
LCNRV applications determine the amount of the loss.
In: Accounting
Diaz Company issued $101,000 face value of bonds on January 1, 2018. The bonds had a 8 percent stated rate of interest and a ten-year term. Interest is paid in cash annually, beginning December 31, 2018. The bonds were issued at 99. The straight-line method is used for amortization.
Required
Use a financial statements model like the one shown below to demonstrate how (1) the January 1, 2018, bond issue and (2) the December 31, 2018, recognition of interest expense, including the amortization of the discount and the cash payment, affect the company’s financial statements.
Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31, 2018.
Determine the amount of interest expense reported on the 2018 income statement.
Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31, 2019.
Determine the amount of interest expense reported on the 2019 income statement.
In: Accounting
[The following information applies to the questions
displayed below.]
The adjusted trial balance for Chiara Company as of December 31,
2017, follows.
Debit | Credit | |||||
Cash | $ | 176,900 | ||||
Accounts receivable | 51,000 | |||||
Interest receivable | 22,600 | |||||
Notes receivable (due in 90 days) | 172,000 | |||||
Office supplies | 16,000 | |||||
Automobiles | 172,000 | |||||
Accumulated depreciation—Automobiles | $ | 95,000 | ||||
Equipment | 136,000 | |||||
Accumulated depreciation—Equipment | 21,000 | |||||
Land | 78,000 | |||||
Accounts payable | 92,000 | |||||
Interest payable | 20,000 | |||||
Salaries payable | 17,000 | |||||
Unearned fees | 40,000 | |||||
Long-term notes payable | 156,000 | |||||
Common stock | 29,580 | |||||
Retained earnings | 266,220 | |||||
Dividends | 45,000 | |||||
Fees earned | 544,000 | |||||
Interest earned | 26,000 | |||||
Depreciation expense—Automobiles | 26,500 | |||||
Depreciation expense—Equipment | 22,000 | |||||
Salaries expense | 189,000 | |||||
Wages expense | 44,000 | |||||
Interest expense | 34,800 | |||||
Office supplies expense | 34,000 | |||||
Advertising expense | 62,000 | |||||
Repairs expense—Automobiles | 25,000 | |||||
Totals | $ | 1,306,800 | $ | 1,306,800 | ||
Required:
1(a) Prepare the income statement for the year ended
December 31, 2017.
1(b) Prepare the statement of retained earnings
for the year ended December 31, 2017.
1(c) Prepare Chiara Company's balance sheet as of
December 31, 2017.
Prepare the income statement for the year ended December 31, 2017.
|
Prepare the statement of retained earnings for the year ended December 31, 2017.
|
Prepare Chiara Company's balance sheet as of December 31, 2017.
|
In: Accounting
Haggerty Company pays its salaried employees monthly on the last day of each month. The annual salary payroll for 2015 follows. Compute the following for the payroll of December 31:
If an amount is zero, enter "0". Round your answers to the nearest cent.
Employee | Annual Salary | OASDI Taxable Wages | OASDI Tax | HI Taxable Wages | HI Tax |
Stern, Myra | $42,150 | $ | $ | $ | $ |
Lundy, Hal | 30,500 | ||||
Franks, Rob | 36,000 | ||||
Haggerty, Alan | 161,280 | ||||
Ward, Randy | 40,800 | ||||
Hoskin, Al | 29,600 | ||||
Wee, Pam | 106,800 | ||||
Prince, Harry | 76,800 | ||||
Maven, Mary | 24,000 | ||||
Harley, David | 68,960 | ||||
Totals | $616890.00 | $ | $ | $ | $ |
Employer's OASDI Tax | $ |
Employer's HI Tax | $ |
In: Accounting
The Riteway Ad Agency provides cars for its sales staff. In the past, the company has always purchased its cars from a dealer and then sold the cars after three years of use. The company’s present fleet of cars is three years old and will be sold very shortly. To provide a replacement fleet, the company is considering two alternatives:
Purchase alternative: | The company can purchase the cars, as in the past, and sell the cars after three years of use. Ten cars will be needed, which can be purchased at a discounted price of $22,000 each. If this alternative is accepted, the following costs will be incurred on the fleet as a whole: |
Annual cost of servicing, taxes, and licensing | $ | 3,800 |
Repairs, first year | $ | 1,700 |
Repairs, second year | $ | 4,200 |
Repairs, third year | $ | 6,200 |
At the end of three years, the fleet could be sold for one-half of the original purchase price.
Lease alternative: | The company can lease the cars under a three-year lease contract. The lease cost would be $57,000 per year (the first payment due at the end of Year 1). As part of this lease cost, the owner would provide all servicing and repairs, license the cars, and pay all the taxes. Riteway would be required to make a $14,000 security deposit at the beginning of the lease period, which would be refunded when the cars were returned to the owner at the end of the lease contract. |
Riteway Ad Agency’s required rate of return is 16%.
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. What is the net present value of the cash flows associated with the purchase alternative?
2. What is the net present value of the cash flows associated with the lease alternative?
3. Which alternative should the company accept?
In: Accounting
Describe what is meant by asset impairment and identify the sources of inherent risks related to asset
impairment.
In: Accounting