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AFM101 Chapter Notes - Chapter 8: Current Asset, European Cooperation In Science And Technology, Internal Control

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School
University of Waterloo
Department
Accounting & Financial Management
Course
AFM101
Professor
Jyothika Grewal

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AFM101 Full Course Notes
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1. held for sale in the normal course of business or. 2. used to produce goods or services for sale. Inventory is reported on the statement of financial position as a current asset because it normally is used or converted into cash within one year or within the next operating cycle of the business, whichever is longer. Goods held for resale in the normal course of business. The goods usually are acquired in a finished condition and are ready for sale without further processing. Manufacturing businesses hold the following types of inventory. Raw materials inventory: includes items acquired for the purpose of processing into finished goods. Work-in-process inventory: includes goods in the process of being manufactured. Finished goods inventory: includes manufactured goods that are complete and available for sale. When merchandise is purchased, the merchandise inventory account is increased. When the goods are sold, the merchandise inventory is decreased and the cost of sales is increased.

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Related Questions

12 ACCOUNTING QUESTIONS

4. Using a perpetual inventory system, the buyer'sjournal entry to record the return of merchandise purchased onaccount includes a:

Select one:

A. Credit to Cost of Goods Sold

B. Credit to Accounts Payable

C. Credit to Purchase Returns

D. Credit to Inventory

6.Using a perpetual inventory system, the buyer’sjournal entry to record the payment for merchandise within thediscount period includes a:

Select one:

A. Debit to Accounts Payable

B. Debit to Cost of Goods Sold

C. Debit to Purchases

D. Debit to Inventory

7.Which of the following statements regarding cost flows istrue?

Select one:

Cost of goods available for sale is equal to beginning inventoryminus cost of goods purchased.

CGAS = beginning inventory minus ending inventory.

Cost of goods available for sale is equal to beginning inventoryplus cost of goods purchased.

CGAS = cost of goods sold minus cost of goods purchased.

10. Using a perpetual inventory system, the buyer’sjournal entry to record the purchase of merchandise on creditincludes a:

Select one:

A. Debit to Inventory

B. Debit to Freight In

C. Debit to Cost of Goods Sold

D. Debit to Purchases

11. Which of the following is not shown in thestatement of stockholder's equity?

Select one:

A. Unearned revenue

B. Common stock

C. Retained earnings

D. Dividends

13. Using a perpetual inventory system, the seller’sjournal entry to record the sale of merchandise on account includesa:

Select one:

A. Debit to Accounts Receivable

B. Credit to Cost of Goods Sold

C. Credit to Purchases

D. Debit to Inventory

14. A merchandising company's multi-step income statementdiffers from that of a service company in what way?

Select one:

A service company does not include a line for cost of goodssold.

A service company has a line for selling expenses whereas amerchandising company does not.

There is no difference.

A merchandising company will have a line for income fromoperations whereas a service company will not.

16.Using a perpetual inventory system, the seller’s journalentry to record the return, by the buyer, of merchandise purchasedon account includes a:

Select one:

A. Credit to Purchase Returns

B. Debit to Cost of Goods Sold

C. Debit to Accounts Receivable

D. Debit to Sales and Allowances

20. For a firm that uses the perpetual inventory system, theSales Returns and Allowances account:

Select one:

A. Is not a contra account

B. Is not used

C. Is debited by the firm receiving returned goods from acustomer

D. Has a normal credit balance

21. Current assets are cash and other assets that will beconverted into cash or used up within:

Select one:

A. One year

B. The normal operating cycle of the business

C. The normal operating cycle of the business or one year,whichever is longer

D. The normal operating cycle of the business or one year,whichever is shorter

22. The balance sheet format that reports assets first and then,beneath the assets, reports the liabilities and stockholders'equity is called the:

Select one:

A. Account form

B. Report form

C. Stack form

D. Classified form

23. Safari Monkey Company sold $2,400,000 worth of merchandise,had $200,000 returned, and then the balance was received during the2% discount period.

What were the company’s net sales?

Select one:

A. $1,800,000

B. $1,760,000

C. $2,156,000

D. $2,040,000

Valport Company, a manufacturer of fiber optic communications equipment, uses a job-order costing system. Since the production process is heavily automated, manufacturing overhead is allocated on the basis of machine hours using a predetermined overhead rate. The current annual rate of $15 per machine hour is based on budgeted manufacturing overhead costs of $1,200,000 and a budgeted activity level of 80,000 machine hours. Operations for year 20xx have been completed, and all of the accounting entries have been made for the year except the allocation of manufacturing overhead to the jobs worked on during December, the transfer of costs from Work in Process to Finished Goods for the jobs completed in December, and the transfer of costs from Finished Goods to Cost of Goods Sold for the jobs that have been sold during December. Summarized data as of November 30, 20xx and for December 20xx are presented in the following table. Jobs T11-007, N11-013, and N11-015 were completed during December. All completed jobs except Job N11-013 had been turned over to customers by the close of business on December 31, 20xx.

Work-in-Process December 20xx Activity

Balance Direct Direct Machine

Job No. 11/30/xx Material Labor Hours

T11-007 $ 87,000 $ 1,500 . $ 4,500 300

N11-013 55,000 4,000 12,000 1,000

N11-015 -0- 25,600 26,700 1,400

D12-002 -0- 37,900 20,000 2,500

D12-00 . -0- 26,000 16,800 800

________ _______ ______ _______

Total $142,000 $95,000 $80,000 6,000

Activity December

through 20xx

11/30/xx Activity

Actual manufacturing overhead incurred:

Indirect material . . . . . . . . . . . . . . . . . . . . . . . . $125,000 . . . . . . . . $ 9,000

Indirect labor. . . . . . . . . . . . . . . . . . . . . . . . . . . 345,000 . . . . . . . . 30,000

Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245,000 . . . . . . . . 22,000

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 385,000 . . . . . . . . 35,000

Total overhead . . . . . . . . . . . . . . . . . . . . . . . . . $1,100,000 . . . . . . . $96,000

Other items:

Raw-material purchases* . . . . . . . . . . . . . . . . . $ 965,000 . . . . . . . $98,000

Direct-labor costs . . . . . . . . . . . . . . . . . . . . . . $ 845,000 . . . . . . . . 80,000

Machine hours . . . . . . . . . . . . . . . . . . . . . . . . . 73,000 . . . . . . . . 6,000

Account Balances at Beginning of Year 1/1/xx

Raw-materials inventory* . . . . . . . . . . . . . . . . . . . . $105,000

Work-in-process inventory . . . . . . . . . . . . . . . . . . . 60,000

Finished-goods inventory . . . . . . . . . . . . . . . . . . . 125,000

*Raw-material purchases and raw-materials inventory consist of both direct and indirect materials. The balance of the Raw-Materials Inventory account as of December 31, 20xx is $85,000.

REQUIRED:

How much manufacturing overhead would Valport have allocated to jobs through November 30, 20xx?

How much manufacturing overhead would be allocated to jobs by Valport during December 20xx?

Determine the amount by which the manufacturing overhead is overallocated or underallocated as of December 31, 20xx?

Determine the balance in Valport Company's Finished-Goods Inventory account on December 31, 20xx? (Hint: which completed job(s) are still in the finished goods warehouse as of December 31, 20xx?)

Determine the balance in Valport Company's Work-in-process Inventory account on December 31, 20xx? (Hint: which incomplete job(s) are still in the factory as of December 31, 20xx?)

Prepare a Schedule of Cost of Goods Manufactured for Valport Company for the year 20xx. (Hint: In computing the cost of direct material used, remember that Valport includes both direct and indirect material in its Raw-Materials Inventory account i.e.

Raw materials used in 20xx = Direct materials used in 20xx + Indirect materials used in 20xx)

FiberCom, Inc., a manufacturer of fiber optic communicationsequipment, uses a job-order costing sys-tem. Since the productionprocess is heavily automated, manufacturing overhead is applied onthe basis of machine hours using a predetermined overhead rate. Thecurrent annual rate of $15 per machine hour is based on budgetedmanufacturing overhead costs of $1,200,000 and a budgeted activitylevel of 80,000 machine hours (the company’s estimated practicalcapacity). Operations for the year have been completed, and all ofthe accounting entries have been made for the year except theapplication of manu-facturing overhead to the jobs worked on duringDecember, the transfer of costs from Work-in-Process toFinished-Goods for the jobs completed in December, and the transferof costs from Finished Goods to Cost of Goods Sold for the jobsthat have been sold during December. Summarized data as of November30 and for the month of December are presented in the followingtable. Jobs T11-007, N11-013, and N11-015 were completed duringDecember. All completed jobs except Job N11-013 had been turnedover to customers by the close of business on December 31

Work-in-Process December Activity

Job No. Balance November 30 Direct Material Direct Labor MachineHours

T11-007 .....................$ ??????87,000 $ ? 1,500..........................$ ? 4,500 .........................300

N11-013 .................... 55,000 ?? 4,000.......................... 12,000.........................1,000

N11-015 .................... -0- ?????? 25,600.......................... 26,700.........................1,400

D12-002 .................... -0- ?????? 37,900.......................... ?20,000.........................2,500

D12-003 .................... ??? -0- 26,000.......................... 16,800......................... ? 800

Total .......................$142,000 $95,000..........................$80,000.........................6,000

Operating Activity Activity through November 30 DecemberActivity

Actual manufacturing overhead incurred:

Indirect material .................................... $?125,000 .......................... $ 9,000

Indirect labor ......................................... ?345,000 .......................... 30,000

Utilities ................................................... ?245,000 .......................... 22,000

Depreciation .......................................... 385,000.......................... 35,000

Total overhead ...................................... $1,100,000.......................... $96,000

Other data:

Raw-material purchases* ...................... $ ?965,000.......................... $98,000

Direct-labor costs .................................. $ ?845,000......................... .$80,000

Machine hours ....................................... ?73,000......................... .6,000

.Account Balances at Beginning of Year January 1

Raw-material inventory* ............................$105,000

Work-in-process inventory ......................... ? 60,000

Finished-goods inventory .......................... 125,000

*Raw-material purchases and raw-material inventory consist ofboth direct and indirect materials. The balance of the Raw-MaterialInventory account as of December 31 of the year just completed is$85,000..

Required:

1. Explain why manufacturers use a predetermined overhead rateto apply manufacturing overhead to their jobs.

2. How much manufacturing overhead would FiberCom have appliedto jobs through November 30 of the year just completed?

3. How much manufacturing overhead would have been applied tojobs during December of the year just completed?

4. Determine the amount by which manufacturing overhead isoverapplied or underapplied as of December 31 of the year justcompleted.

5. Determine the balance in the Finished-Goods Inventory accounton December 31 of the year just completed.

6. Prepare a Schedule of Cost of Goods Manufactured forFiberCom, Inc. for the year just completed. (Hint: In computing thecost of direct material used, remember that FiberCom includes bothdirect and indirect material in its Raw-Material Inventoryaccount.)

NEED #6 FIGURED OUT PLEASE