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ACTG 2300 Midterm: Exam 1 In-Class Review

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purplecicada511
7 Feb 2017
School
University of Denver
Department
Accounting
Course
ACTG 2300
Professor
Patelli Lorenzo

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Document Summary

Vmoh = 40: don"t include var s&a. Fmoh = 60,000 / 250 = 240. Variable cost is always avoidable, so it is always relevant. Sunk cost: def: a cost that has already been incurred and does not change. Indirect cost: we can never say whether a cost is direct or indirect if we do not know what the cost object is. If we use the dish, it is indirect. If we use location, the cost can be directly traced. Product cost: def: can be expensed and incurred in different periods can sit in the balance sheet until we incur it. Period cost: def: expensed (reported in the income statement) and incurred in the same period. Use past to estimate the future: if we assume normal conditions in future. Every unit we sell, we incur . 4 in sales. Every unit we sell, we incur . 4 in sales: total cost. S&a and cost of sales fixed costs.

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Related Questions

Read the 2015 annual report of Air France – KLM and answer the 20 questions asked regarding the accounting issues. Link is provided below:

http://www.airfranceklm.com/sites/default/files/publications/afkl_registration_doc_2015.pdf

1. Air France-KLM reports ‘Consolidated statement of recognized income and expenses’ for the year ended December 31, 2015. If this statement was a U.S. GAAP statement, what would be the title of this statement?

a. Consolidated statement of total net income

b. Consolidated statement of other comprehensive income

c. Consolidated statement of comprehensive income

d. Consolidated statement of recognized net income

2. What method does Air France-KLM use for the Statement of Cash Flows?

a. Indirect method

b. Direct method

c. Gross method

d. Net method

3. The basic and diluted earnings per share for the year ended December 31, 2015, indicates that Air France-KLM has:

a. no convertible debts.

b. some dilutive securities.

c. no preferred stocks.

d. some treasury stocks.

4. What method is used to account for investments in companies over which Air France-KLM can ‘exercise significant influence on financial and operating policy decisions?’

a. Cost method

b. Liability method

c. Equity method

d. Fair value method

5. Sale of passenger tickets is accounted for at the time of ticket sale as:

a. Sales revenue

b. Deferred revenue

c. Contingent asset

d. No recognition

6. How does Air France account for business combination costs other than those related to the issuance of debt or equity securities?

a. Expensed as incurred

b. Capitalized as incurred

c. Included in goodwill

d. Used to offset fair value of the acquisition

7. Which of the following is not an ‘accumulated other comprehensive income’ item among those reported in the ‘reserves and retained earnings’ in the 2015 consolidated balance sheet of Air France-KLM?

a. Available for sale securities reserves.

b. Derivatives reserves.

c. Legal reserves.

d. Pension defined benefits reserves.

8. What is the carrying amount of investments in debt and equity securities that are classified as available-for-sale?

a. Fair value Cost

b. Amortized cost

c. Lower of cost or market

9. Inventories are carried at:

a. The lower of the first-in-first-out cost or net realizable value.

b. The first-in-first-out cost.

c. The lower of the weighted-average cost or net realizable value.

d. The weighted-average cost.

10. Air France-KLM classifies its frequent flyer programs as:

a. Noncurrent liability

b. Current liability

c. Current asset

d. Other debt

11. The followings are included in Air France-KLM’s intangible assets, except for:

a. Trademarks

b. Leased aircraft

c. Customer relationships

d. Slots for takeoff and landing

12. Air France-KLM reports bank overdrafts as:

a. A contra account to cash and cash equivalents.

b. A current liability.

c. An expense.

d. A bank deposits in transit.

13. Which method does Air France-KLM use to record depreciation expense for its flight equipment?

a. The activity-based method.

b. The sum-of-years’-digit method.

c. The straight-line method.

d. The group method.

14. Which accounting standards does Air France-KLM use?

a. U.S. GAAP

b. French GAAP

c. Netherlands GAAP

d. International Financial Reporting Standards

15. As of December 31, 2015, what assets are held for sale?

a. Land

b. Aircraft

c. Equipment

d. Buildings

16. Which of the following is included in ‘income from operating activities’ but not in ‘income from current operations?

a. Sale of aircraft equipment

b. Research and development costs

c. Bad debt expense

d. Interest revenue

17. Which of the following is not true about accounting treatment for the overhaul cost of major airframe and engine?

a. The cost is treated as separate asset component.

b. The cost is capitalized.

c. The cost is depreciated over the remaining useful life.

d. The cost is expensed as incurred.

18. How are financial assets accounted for if the Air France-KLM intends to sell them in the near future to realize capital gains?

a. At fair value with fair value changes recognized in the current period profit and loss

b. At fair value with fair value changes recognized as other comprehensive income

c. At cost with no recognition of fair value changes

d. At amortized cost with no recognition of fair value changes

19. Which of the following is not true about impairment test?

a. Tangible fixed assets, intangible assets, goodwill, and other assets with indefinite useful life are subject to an impairment test.

b. The impairment test is done at least once a year.

c. Recoverable value is the lower of the net realizable value and value in use.

d. The value in use is determined according to the discounted future cash flow method.

20. Which of the following is not an ‘other non-current income and expenses’ item?

a. Restructuring costs

b. Gains and losses on disposal of shares available for sale

c. Gains and losses on disposal of subsidiaries and affiliates

d. Gains and losses on sale of trading securities

CASE 4–20 Ethics and the Manager, Understanding the Impact of Percentage Completion on Profit—Weighted-Average Method [Course Objective B] Gary Stevens and Mary James are production managers in the Consumer Electronics Division of General Electronics Company, which has several dozen plants scattered in locations throughout the world. Mary manages the plant located in Des Moines, Iowa, while Gary manages the plant in El Segundo, California. Production managers are paid a salary and get an additional bonus equal to 5% of their base salary if the entire division meets or exceeds its target profits for the year. The bonus is determined in March after the company’s annual report has been prepared and issued to stockholders.

Shortly after the beginning of the New Year, Mary received a phone call from Gary that went like this:

Gary: How’s it going, Mary?

Mary: Fine, Gary. How’s it going with you?

Gary: Great! I just got the preliminary profit figures for the division for last year and we are within $200,000 of making the year’s target profits. All we have to do is pull a few strings, and we’ll be over the top!

Mary: What do you mean? Gary: Well, one thing that would be easy to change is your estimate of the percentage completion of your ending work in process inventories. Mary: I don’t know if I can do that, Gary. Those percentage completion figures are supplied by Tom

Winthrop, my lead supervisor, who I have always trusted to provide us with good estimates.

Besides, I have already sent the percentage completion figures to corporate headquarters. Gary: You can always tell them there was a mistake. Think about it, Mary. All of us managers are doing as much as we can to pull this bonus out of the hat. You may not want the bonus check, but the rest of us sure could use it.

The final processing department in Mary’s production facility began the year with no work in process inventories. During the year, 210,000 units were transferred in from the prior processing department and 200,000 units were completed and sold. Costs transferred in from the prior department totaled $39,375,000. No materials are added in the final processing department. A total of $20,807,500 of conversion cost was incurred in the final processing department during the year.

Required:

1. Tom Winthrop estimated that the units in ending inventory in the final processing department were 30% complete with respect to the conversion costs of the final processing department. If this estimate of the percentage completion is used, what would be the Cost of Goods Sold for the year? (Note: Since all units completed were sold, the cost of goods transferred out = Cost of Goods Sold.)

2. Gary is recommending that the completion percentage by adjusted by 15 percentage points in order to assist the team in making their bonus.

a. Calculate the cost of goods sold if the ending inventory is 15% complete in regard to conversion costs. Would net income increase or decrease if this option was chosen over the 30% completion percentage? How much is the increase?

b. Calculate the cost of goods sold if the ending inventory is 45% complete in regard to conversion costs. Would net income increase or decrease if this option was chosen over the 30% completion percentage? How much is the increase?

c. Based on your calculations, which percentage is Gary suggesting that Mary use for her ending inventory calculations.

FILL IN THE CORRECT TERMINOLOGIES IN THE BLANK SPACES
_____ 1. a. A method of internal (managerial accounting) reporting that emphasizes the distinction between variable and fixed costs.
_____ 2. b. A discounted cash flow approach to capital budgeting that computes the present value of all future cash flows.
_____ 3. c. Determination of the maximum cost a company can spend to make a product given a set volume, selling price and desired operating profit.
_____ 4. d. An analysis of the additional costs and benefits of a proposed alternative compared with the current situation.
_____ 5. e. A historical cost that the company has already incurred which is irrelevant to the decision making process.
_____ 6. f. Costs that will not continue if an ongoing operation is changed or deleted.
_____ 7. g. An already owned production site that is not currently in use.
_____ 8. h. The maximum available benefit foregone by using a resource for a particular purpose.
_____ 9. i. The predicted future costs and revenues that will differ among alternative courses of action.
_____ 10. J. The time it will take to recoup, in the form of cash inflows from operations, the initial dollars invested in a project
_____ 11. k. Those costs of facilities and services that are shared by users
_____ 12. l. The juncture of manufacturing where separate products developed in the same process become individually identifiable.
_____ 13. m. A costing approach that considers all indirect manufacturing costs (both variable and fixed) to be product (inventoriable) costs.
_____ 14. n. Purchasing products or services from a supplier outside the company.
_____ 15. o. Capital budgeting models that focus on cash inflows and ouflows while taking into account the time value of money
_____ 16. p. Calculation of a selling price sufficient to cover the cost of producing a product as well as desired operating income
_____ 17 q. The long-term planning for investment commitments with returns spread over multiple years
_____ 18. r. A decision process that compares the differential revenues and costs of alternatives.
_____ 19. s. Costs that will continue even if a company discontinues one of its current operations
_____ 20. t. The increase in expected average annual operating income divided by the original required investment