1.Which is not a required characteristic for a liability to be recognized?

Nonavoidable

Service potential

Incurred

2.

Which of the following is not a general category of shareholders' equity?

Net income

Contributed capital

Noncontrolling interest

Earned capital

3.

An asset is valued by the price that would be received by selling it in an orderly transaction between market participants on the date of measurement. Which measurement method is being used in this case?

Present value

Reliable value

Historical cost

Fair value

Transfer

4.

A balance sheet account that is usually reported at fair value is

Marketable Securities.

Accounts Payable.

Inventory.

Land.

5.

A balance sheet account that is usually reported at present value is

Inventory.

Accounts Payable.

Land.

Note Payable.

6.

Long-term investments include all of the following except

cash surrender value of life insurance policies.

a building held for rental activity.

bonds payable.

sinking funds.

7.

Property, plant, and equipment section of the balance sheet includes all of the following except

intangible assets.

leasehold improvements.

natural resources.

construction in progress.

8.

What is the term for the systematic allocation of the costs of intangible assets to expense?

Impairment

Amortization

Depletion

Depreciation

9.

Which of the following is not an intangible asset?

Brand name

Deferred tax asset

Franchise

Computer software

Which of the following would typically be recorded as an intangible asset with a finite useful life?

Brand name

Goodwill

Franchises

Trademarks

Which of the following would typically be recorded as an intangible asset with a finite useful life?

Brand name

Goodwill

Franchises

Trademarks

10.

The adjusted historical cost of fixed assets, calculated as historical cost minus depreciation, is called

depreciable cost.

net book value.

amortization.

impairment.

Problem 04-3A Applying activity-based costing LO P1, P3, A1, A2, C3 Skip to question [The following information applies to the questions displayed below.] Craft Pro Machining produces machine tools for the construction industry. The following details about overhead costs were taken from its company records. Production Activity Indirect Labor Indirect Materials Other Overhead Grinding $ 380,000 Polishing $ 205,000 Product modification 550,000 Providing power $ 245,000 System calibration 560,000 Additional information on the drivers for its production activities follows. Grinding 14,000 machine hours Polishing 14,000 machine hours Product modification 1,400 engineering hours Providing power 20,000 direct labor hours System calibration 400 batches Job 3175 Job 4286 Number of units 160 units 2,000 units Machine hours 300 MH 3,000 MH Engineering hours 28 eng. hours 22 eng. hours Batches 25 batches 75 batches Direct labor hours 510 DLH 4,590 DLH Problem 04-3A Required:
2, 3 & 4. Compute the activity overhead rates using ABC. Combine the grinding and polishing activities into a single cost pool. Determine overhead costs to assign to the above jobs using ABC. What is the overhead cost per unit for Job 3175? What is the overhead cost per unit for Job 4286? (Round your activity rate and average overhead cost per unit to 2 decimal places. Round "overhead assigned" to the nearest whole dollar.)

LO 2, 4, 6, 7) Carson Construction Consultants performs cement core tests in its Greenville laboratory. The following standard costs for the tests have been developed by the company's controller, Landon Carson, based on performing 2,100 core tests per month. Standard Price Standard Quantity Standard Cost Direct materials $0.50 per pound    4 pounds $ 2.00 Direct labor $10 per DLH   .5 DLH   5.00 Variable overhead $9 per DLH   .5 DLH   4.50 Fixed overhead $16 per DLH   .5 DLH   8.00 Total standard cost per test $19.50 At the end of March, London reported the following operational results: •The company actually performed 2,250 core tests during the month. •8,500 pounds of direct materials were purchased during the month at a total cost of $5,600. •6,300 pounds of direct materials were used to conduct the core tests. •850 direct labor hours were worked at a total cost of $9,775. •Actual variable overhead was $7,800. •Actual fixed overhead was $15,750. Required (a) Calculate the direct materials price variance for March. (b) Calculate the direct materials quantity variance for March. (c) Calculate the direct labor rate variance for March. (d) Calculate the direct labor efficiency variance for March. (e) Calculate the variable overhead spending variance for March. (f) Calculate the variable overhead efficiency variance for March. (g) Calculate the fixed overhead spending variance for March. (h) Prepare a memo to Landon Carson providing possible explanations for the direct materials and direct labor variances.

Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $88,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $39,800. A new piece of equipment will cost $280,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

The firm’s tax rate is 35 percent and the cost of capital is 12 percent.

a. What is the book value of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.)

b.What is the tax loss on the sale of the old equipment?

c.  What is the tax benefit from the sale?

d. What is the cash inflow from the sale of the old equipment?

e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment.)

f.Determine the depreciation schedule for the new equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.)
year

g. Determine the depreciation schedule for the remaining years of the old equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.)
  

h. Determine the incremental depreciation between the old and new equipment and the related tax shield benefits. (Enter the tax rate as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.)
  

i. Compute the aftertax benefits of the cost savings. (Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.)
  

j-1. Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual benefits. (Do not round intermediate calculations and round your answers to the nearest whole dollar.)
  

j-2. Compute the present value of the total annual benefits. (Do not round intermediate calculations and round your answer to the nearest whole dollar.)
  

k-1. Compare the present value of the incremental benefits (j) to the net cost of the new equipment (e)

Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $92,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $41,800. A new piece of equipment will cost $300,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

The firm’s tax rate is 30 percent and the cost of capital is 13 percent.

e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.)
  

f. Determine the depreciation schedule for the new equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.)
  

g. Determine the depreciation schedule for the remaining years of the old equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.)
  

h. Determine the incremental depreciation between the old and new equipment and the related tax shield benefits. (Enter the tax rate as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.)
  

i. Compute the aftertax benefits of the cost savings. (Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.)
  

j-1. Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual benefits. (Do not round intermediate calculations and round your answers to the nearest whole dollar.)
  

j-2. Compute the present value of the total annual benefits. (Do not round intermediate calculations and round your answer to the nearest whole dollar.)
  

k-1. Compare the present value of the incremental benefits (j) to the net cost of the new equipment (e). (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.)
  

k-2. Should the replacement be undertaken?
  

The following financial statements relate to Techmation Ltd for 2016 and 2017 respectively.

Required: 2.1 Calculate each of the following accounting ratios for both years:

2.1.1 Gross Margin Percentage (3)

2.1.2 Mark-up Percentage (3)

2.1.3 Return on Assets before Interest and Tax (do not use average figures) (3)

2.1.4 Current Ratio (3) 2.1.5 Acid-test Ratio (3)

2.1.6 Return on Equity (do not use average figures) (3)

2.2 Comment on the trends for the following ratios:

2.2.1 Gross margin percentage (3)

2.2.2 Current Ratio (2)

2.2.3 Acid-test ratio (2)

E6-11 Calculating Target Profit, Margin of Safety, Degree of Operating Leverage [LO 6-2, 6-3, 6-4, 6-5]

Dana’s Ribbon World makes award rosettes. Following is information about the company:

3. Calculate Dana’s degree of operating leverage if it sells 1,700 rosettes. (Round your intermediate calculations to 2 decimal places and final answer to 4 decimal places.)

4. Using the degree of operating leverage, calculate the change in Dana’s profit if unit sales drop to 1,275 units. Confirm this by preparing a new contribution margin income statement. (Round your intermediate calculations to 4 decimal places and final answer to 2 decimal places. (i.e. .1234 should be entered as 12.34%.))

Rooney Company is considering the addition of a new product to its cosmetics line. The company has three distinctly different options: a skin cream, a bath oil, or a hair coloring gel. Relevant information and budgeted annual income statements for each of the products follow.

  
Required:

a) Determine the margin of safety as a percentage for each product.

b) Prepare revised income statements for each product, assuming a 20 percent increase in the budgeted sales volume.

c) For each product, determine the percentage change in net income that results from the 20 percent increase in sales.

d) Assuming that management is pessimistic and risk averse, which product should the company add to its cosmetics line?

e) Assuming that management is optimistic and risk aggressive, which product should the company add to its cosmetics line?

a^

b^

c^

Exam case study Foreign direct investment in China: A case study from the Yangtze Delta Basin The metropolis of Shanghai dominates the rich, fertile and low-lying plain south of the Yangtze River in China. Within a 150 kilometre radius are also located the major urban centres of Suzhou, Nanjing, Hangzhou and Ningbo. Suzhou is approximately one hour by road from Shanghai and is one of the oldest cities in the Yangtze Delta Basin, with an identifiable history stretching back 2500 years. There is a traditional Chinese saying: ‘There’s paradise in heaven, but Suzhou and Hangzhou on earth’—a reference to Suzhou’s beautiful gardens and canals. In the 1980s Deng Xiaoping’s ‘open door policy’ was adopted in China and provided preferential treatment for coastal regions to develop special economic zones. These themed reforms nurtured economic change and were in line with Deng’s wishes, enabling ‘some people to get rich’ (Isaak 2000). To persuade foreign direct investment to come to Suzhou, policies for the effective leadership of development were enacted. For example, in 1998 L Government, the Jurong Township Corporation (JTC), was appointed to manage the establishment process for what was initially called the Singapore Industrial Park (SIP). Located between Shanghai and Suzhou, SIP became a flagship project for the new generation of ETDZs. The initial investment and control was 65 per cent Singaporean and 35 per cent Chinese, and a specially set up authority managed the ETDZ. It had its own customs house, and was notable for its superior infrastructure and strict environmental controls. However, the success of the Singaporean model became awkward for the Chinese and the local Suzhou municipality. They witnessed the success of the SIP, but had limited share in the wealth being generated. This prompted a flurry of activity for the emergence of another ETDZ on the other side of Suzhou, which created direct competition with the SIP. The Suzhou new district The Suzhou New District (SND) was thus built by the local municipality. SND was first established in 1992, and was considered a ‘high-tech’ ETDZ with a science and technology theme. It promoted a ‘garden-like’ atmosphere with ‘liveable surroundings’. The infrastructure in SND was developed through establishing a banking sector and a mediumrise expatriate living area. The growth of this ETDZ was credited to the development of its infrastructure services. SND established a theme park and invested in recruiting, employment and training industries. The land quality and position of SND was superior to that of the SIP and it was located right beside the city centre of Suzhou, whereas the SIP was, at this time, somewhat more remote. Despite fierce initial rivalry, both ETDZs are now successfully established and are attracting substantial FDI; the local TVEs are booming and local private business is encouraged. Considerations for FDI in the ETDZs While Jiangsu province now boasts a number of development zones, the Suzhou New District and the Suzhou Industrial Park are the main economic and technological development zones in this region. Specific regulations vary within each zone, which provide incentives for foreign direct investment. Important considerations for the ETDZs are the infrastructure (such as water plants, sewage and gas, power supply and ISDN telecommunications) and a preferential tax policy offering favourable terms to foreign investment companies. Furthermore, housing for both expatriates and workers, along with sporting, cultural, dining and shopping precincts, enhances the quality of life for residents living in the region. For example, SND provides incentives for housing local workers and SIP has a waste management plan. The administrative authorities within the zones play an integral role in the operations of the ETDZs and in the activities of enterprises within those zones. To help the facilitation of business by making it easier to obtain the permits and licences required for registration as a foreign enterprise in China, the SIP and SND both promote their ‘one-stop set-up shops’ for foreign enterprises. Promotion portraying the convenience of the residential and recreation facilities is clearly visible. When faced with the depth of regulation, language and cultural differences, and bureaucratic delays in obtaining approvals and registrations, facilities within the ETDZs assist foreign enterprises to start up their operations in China. There are also facilities to conduct major recruitment fairs on behalf of enterprises. Each year these fairs attract graduates from all over China. As part of the process, administration checks, qualification and reference checks, along with additional training, are provided, which streamlines employment for both candidates and enterprises. Cultural differences between the international and local culture prevail. SND is located close to the old city of Suzhou, whereas there is a distinctly more international flavour in the SIP, which hosts a ‘Singapore Square’ along with a tax policy favouring foreign investment. The rapid expansion in the ETDZs also has its drawbacks for foreign direct investors. The infrastructure development has not always kept up with expansion in the zones. Access to essential services, long waiting times for operational components and minimal or reduced social and cultural activities are the consequences of rapid progress. This, in turn, has produced diverse opportunities for local entrepreneurs to seize the chance to capitalise on gaps in economic development. The ETDZs are notable for their ability to assimilate supply chains quickly. Because of the large geographical area of the ETDZs, many small townships are located within them. Township enterprises have begun producing components required by the foreign direct investors. Most of these townships were communes during the Maoist area, meaning that production is still organised along these lines. In many instances, these TVEs were single-product-based and supplied Suzhou and Shanghai with farmed fish, fresh vegetables and craft items. Now, many have changed their production to manufacturing items required further along the supply chain. For example a ‘Technology Township’ in SND designs and provides research and development, then component manufacture, to supply the larger assembly plants located in the ETDZ. Therefore, a distinct logistical chain operates between the ETDZs and Shanghai, with components being manufactured in one location and assembled in another, while sales and marketing offices are situated in Shanghai. Perry and Yeoh (2000) provide a history of the China-Singapore- Suzhou Industrial Park. The authors describe the ETDZ’s success in attracting high-technology firms in the electronics, software, mobile telecommunications and pharmaceuticals sectors, although they also highlight the absence of R&D activities in some cases.

There are three main points to consider in discussion of the ETDZs located near Suzhou in Jiangsu province, China:

1 The area has been selected by China’s central government as region for major growth.

2 Multinational/international companies are established in, and are directly investing in, the region.

3 SMEs and TVEs have established supply chains to help facilitate supply and provide logistical channel support to FDI enterprises.