ACCT 2331 Chapter 6: Chapter 6 ACCT 2331
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Wallis Company manufactures only one product and uses a standard cost system. The company uses a predetermined plantwide overhead rate that relies on direct labor-hours as the allocation base. All of the company's manufacturing overhead costs are fixedâit does not incur any variable manufacturing overhead costs. The predetermined overhead rate is based on a cost formula that estimated $2,899,000 of fixed manufacturing overhead for an estimated allocation base of 289,900 direct labor-hours. Wallis does not maintain any beginning or ending work in process inventory.
The companyâs beginning balance sheet is as follows:
| Wallis Company | ||
| Balance Sheet | ||
| 1/1/XX | ||
| (dollars in thousands) | ||
| Assets | ||
| Cash | $ | 850 |
| Raw materials inventory | 300 | |
| Finished goods inventory | 420 | |
| Property, plant, and equipment, net | 10,000 | |
| Total assets | $ | 11,570 |
| Liabilities and Equity | ||
| Retained earnings | $ | 11,570 |
| Total liabilities and equity | $ | 11,570 |
The companyâs standard cost card for its only product is as follows:
| Inputs | (1) Standard Quantity or Hours | (2) Standard Price or Rate | Standard Cost (1) Ã (2) | ||||
| Direct materials | 2 pounds | $ | 33.00 | per pound | $ | 66.00 | |
| Direct labor | 3.00 hours | $ | 15.00 | per hour | 45.00 | ||
| Fixed manufacturing overhead | 3.00 hours | $ | 10.00 | per hour | 30.00 | ||
| Total standard cost per unit | $ | 141.00 | |||||
During the year Wallis completed the following transactions:
Purchased (with cash) 237,500 pounds of raw material at a price of $31.00 per pound.
Added 218,750 pounds of raw material to work in process to produce 96,500 units.
Assigned direct labor costs to work in process. The direct laborers (who were paid in cash) worked 248,000 hours at an average cost of $16.00 per hour to manufacture 96,500 units.
Applied fixed overhead to work in process inventory using the predetermined overhead rate multiplied by the number of direct labor-hours allowed to manufacture 96,500 units. Actual fixed overhead costs for the year were $2,747,500. Of this total, $1,355,000 related to items such as insurance, utilities, and salaried indirect laborers that were all paid in cash and $1,392,500 related to depreciation of equipment.
Transferred 96,500 units from work in process to finished goods.
Sold (for cash) 93,500 units to customers at a price of $170 per unit.
Transferred the standard cost associated with the 93,500 units sold from finished goods to cost of goods sold.
Paid $2,127,500 of selling and administrative expenses.
Closed all standard cost variances to cost of goods sold.
Required:
1. Compute all direct materials, direct labor, and fixed overhead variances for the year.
2. Record transactions a through i for Wallis Company.
3. Compute the ending balances for Wallis Companyâs balance sheet.
4. Prepare Wallis Companyâs income statement for the year.
Compute all direct materials, direct labor, and fixed overhead variances for the year. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
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Record transactions a through i for Wallis Company.
Compute the ending balances for Wallis Companyâs balance sheet.
(Unfavorable variances and decreases in balance sheet accounts should be entered with a minus sign. Enter your dollars in thousands.)
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Prepare Wallis Companyâs income statement for the year. (Enter your dollars in thousands. Round your answers to the nearest whole dollar amount.)
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Financial Accounting, 14th Edition
Carl S. Warren; Jim Reeve; Jonathan Duchac
Final_Multiple choice
1. The primary objectives of control over inventory are
a.safeguarding the inventory from damage and maintainingconstant observation of the inventory
b.reporting inventory in the financial statements
c.maintaining constant observation of the inventory andreporting inventory in the financial statements
d.safeguarding inventory from damage and reporting inventory inthe financial statements
2. When merchandise sold is assumed to be in the order in whichthe purchases were made, the company is using
a.first-in, last-out
b.first-in, first-out
c.last-in, first-out
d.average cost
3. Use the information below to answer the followingquestion.
The Boxwood Company sells blankets for $60 each. The following wastaken from the inventory records during May. The company had nobeginning inventory on May 1.
| Date | Blankets | Units | Cost |
| May 3 | Purchase | 5 | $20 |
| 10 | Sale | 3 | |
| 17 | Purchase | 10 | $24 |
| 20 | Sale | 6 | |
| 23 | Sale | 3 | |
| 30 | Purchase | 10 | $30 |
Assuming that the company uses the perpetual inventory system,determine the gross profit for the sale of May 23 using the FIFOinventory cost method.
a.$72
b.$108
c.$180
d.$120
4.If merchandise inventory is being valued at cost and thepurchase price is steadily falling, which method of costing willyield the largest net income?
a.FIFO
b.LIFO
c.average cost
d.weighted average
5.Stevens Company started the year with an inventory cost of$145,000. During the month of January, Stevens purchased inventorythat cost $53,000. January sales totaled $140,000. Estimated grossprofit is 35%. The estimated ending inventory as of January 31is
a.$58,000
b.$107,000
c.$69,300
d.$91,000
6. Which one of the following below is not anelement of internal control?
a.risk assessment
b.cost-benefit considerations
c.monitoring
d.information and communication
7. A check drawn by a company for $340 in payment of a liabilitywas recorded in the journal as $430. What entry is required in thecompany's accounts?
a.debit Cash; credit Accounts Receivable
b.debit Accounts Receivable; credit Cash
c.debit Accounts Payable; credit Cash
d.debit Cash; credit Accounts Payable
8. A bank reconciliation should be prepared
a.to explain any difference between the company's balance perbooks with the balance per bank
b.by the company's bank
c.whenever the bank refuses to lend the company money
d.by the person who is authorized to sign checks
9.
Pilger Corporation has cash on hand at year-end of $201,000 anda negative cash flow from operations of $144,000. What is the ratioof cash to monthly cash expenses?
a.1.4 months
b.7.2 months
c.12.0 months
d.16.8 months
10. When does an account become uncollectible?
a.when accounts receivable is converted into notesreceivable
b.when a discount is availed on notes receivable
c.at the end of the fiscal year
d.there is no general rule for when an account becomesuncollectible
11.On the balance sheet, the amount shown for the Allowance forDoubtful Accounts is equal to the
a.total estimated uncollectible accounts as of the end of theyear
b.sum of all accounts that are past due
c.total of the accounts receivables written-off during theyear
d.uncollectible accounts expense for the year
12. Allowance for Doubtful Accounts has a debit balance of $600at the end of the year (before adjustment), and an analysis ofaccounts in the customers ledger indicates uncollectiblereceivables of $13,000. Which of the following entries records theproper adjusting entry for bad debt expense?
a.debit Allowance for Doubtful Accounts, $600; credit Bad DebtExpense, $600
b.debit Bad Debt Expense, $600; credit Allowance for DoubtfulAccounts, $600
c.debit Bad Debt Expense, $13,600; credit Allowance for DoubtfulAccounts, $13,600
d.debit Bad Debt Expense, $12,400; credit Allowance for DoubtfulAccounts, $12,400
13. When comparing the direct write-off method and the allowancemethod of accounting for uncollectible receivables, a majordifference is that the direct write-off method
a.is used primarily by small companies with few receivables
b.is used primarily by large companies with many receivables
c.uses an allowance account
d.uses a percentage of sales method to estimate uncollectibleaccounts
14. Accumulated Depreciation
a. is used to show the amount of cost expiration ofintangibles
b.is used to show the amount of cost expiration of naturalresources
c.is the same as Depreciation Expense
d.is a contra asset account
15. Equipment with a cost of $220,000 has an estimated residualvalue of $30,000 and an estimated life of 10 years or 19,000 hours.It is to be depreciated by the straight-line method. What is theamount of depreciation for the first full year, during which theequipment was used 2,100 hours?
a.$19,000
b.$21,000
c.$30,000
d.$22,000
16. The process of transferring the cost of metal ores and otherminerals removed from the earth to an expense account is called
a.depreciation
b.depletion
c.amortization
d.deferral
17. The Bacon Company acquired new machinery with a price of$15,200 by trading in similar old machinery and paying $12,700. Theold machinery originally cost $9,000 and had accumulateddepreciation of $5,000. In recording this transaction, BaconCompany should record
a.a loss of $1,500
b.the new machinery at $12,700
c.a gain of $1,500
d.the new machinery at $16,700
18. Assuming a 360-day year, when a $50,000, 90-day, 9%interest-bearing note payable matures, total payment will be
a.$54,500
b.$4,500
c.$1,125
d.$51,125
19. Which of the following is required to be withheld fromemployee's gross pay?
a.only federal income tax
b.both federal and state unemployment compensation taxes
c.only state unemployment compensation tax
d.only federal unemployment compensation tax
20. Hall Company sells merchandise with a one-year warranty. Inthe current year, sales consisted of 4,500 units. It is estimatedthat warranty repairs will average $10 per unit sold, and 30% ofthe repairs will be made in the current year and 70% in the nextyear. In the current year's income statement, Hall should showwarranty expense of
a.$45,000
b.$0
c.$13,500
d.$31,500
21. Which of the following below is not acharacteristic of a limited liability company?
a.limited legal liability
b.unlimited life
c.taxable
d.moderate ability to raise capital
22. Seth and Beth have original investments of $50,000 and$100,000 respectively in a partnership. The articles of partnershipinclude the following provisions regarding the division of netincome: interest on original investment at 10%; salary allowancesof $27,000 and $18,000, respectively; and the remainder to bedivided equally. How much of the net income of $42,000 is allocatedto Seth?
a.$20,000
b.$23,000
c.$32,000
d.$0
23. Which of the following is not a rightpossessed by common stockholders of a corporation?
a.the right to share in assets upon liquidation
b.the right to receive a minimum amount of dividends
c.the right to sell their stock to anyone they choose
d.the right to vote in the election of the board ofdirectors
24. The charter of a corporation provides for the issuance of100,000 shares of common stock. Assume that 45,000 shares wereoriginally issued and 5,000 were subsequently reacquired. What isthe amount of cash dividends to be paid if a $2 per share dividendis declared?
a.$80,000
b.$100,00
c.$90,000
d.$10,000
25.Which statement below is not a reason for acorporation to buy back its own stock?
a.to increase the shares outstanding
b.for supporting the market price of the stock
c.resale to employees
d.bonus to employees
