YOU WERE LOOKING FOR: Accounting Chapter 14 Test B Answers
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The present value of the principal is a. The present value of the interest is a. The issue price of the bonds is a. The bonds pay interest semiannually on June 30 and December What are the proceeds from the bond issue? Present value of a single sum...
The following information applies to both questions 77 and Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. The entry to record the issuance of the bonds would include a credit of a. Bond interest expense reported on the December 31, income statement of Macklin Corporation would be a. The entry to record the issuance of the bonds would include a a.
Bond interest expense reported on the December 31, income statement of Bartley Corporation would be a. These bonds mature in the five years, and interest is paid semiannually on June 30 and December Wallace uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for ? Round your answer to the nearest dollar. On January 1, Patterson Inc. Interest is payable annually on December Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of a. On January 1, Martinez Inc. Martinez uses the effective-interest method of amortizing bond premium. At the end of the first year, Martinez should report unamortized bond premium of: a. Winston uses a calendar-year reporting period. The entry to record the redemption will include a a. Hess uses straight-line amortization. What should Hess record as a gain on retirement of these bonds?
Ignore taxes. The bonds are callable at the option of Hernandez at Hernandez has recorded amortization of the bond premium on the straight-line method which was not materially different from the effective-interest method. Hernandez has recorded interest and amortization for Ignoring income taxes and assuming that the gain is material, Hernandez should report this reacquisition as a. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year.
On July 2, , several years before their maturity, Nixon retired the bonds at The interest payment on July 1, was made as scheduled. What is the loss that Nixon should record on the early retirement of the bonds on July 2, ? A corporation called an outstanding bond obligation four years before maturity. Ignoring income tax considerations, how should these amounts be treated for accounting purposes? Nyman uses the effective-interest method of amortization. On June 30, , several years before their maturity, Nyman retired the bonds at plus accrued interest. The loss on retirement, ignoring taxes, is a. Straight-line amortization is used for discounts and premiums. What gain or loss would be recognized on the called bonds on September 1, ? The note is to be repaid on December 31, What amount of interest income should Ms. Price recognize in ? There was no established exchange price for this property. The note has no ready market. What is the amount of interest income that should be recognized by Jacobs in , using the effective-interest method?
What should be the balance of the Discount on Notes Payable account on the books of Leary at December 31, after adjusting entries are made, assuming that the effective-interest method is used? What was Hill Corporation's times interest earned ratio for the year? What was Cey Corporation's income before taxes for the year? None of the above. The adjusted trial balance for Lifesaver Corp. Nolte should recognize a gain or loss on the transfer of the equipment of a. Nolte should recognize a gain on the partial settlement and restructure of the debt of a. Nolte should record interest expense for of a. Multiple Choice Answers—Computational Item.
However, the effective-interest method is preferred and is generally used. Under IFRS, companies must use the effectiveinterest method. Under IFRS, companies do not use premium or discount accounts but instead show the bond at its net amount. Under GAAP, bond issue costs are recorded as an asset. Under IFRS, bond issue costs are netted against the carrying amount of the bonds. IFRS generally assumes that all restructurings will be accounted for as extinguishments of debt. IFRS requires a liability and related expense or cost be recognized when a contract is onerous. One project is investigating approaches to differentiate between debt and equity instruments. The other project, the elements phase of the conceptual framework project, will evaluate the definitions of the fundamental building blocks of accounting. The results of these projects could change the classification of many debt and equity securities.
A be treated the same as other customers because all customers are important B receive a higher level of attention from the company than less profitable customers C be charged higher prices for the same products than less profitable customers D not be offered the volume-based price discounts offered to less profitable customers Answer: B Diff: 2 Objective: 1 AACSB: Analytical thinking 2 Copyright? A unpaid invoices are categorized according to age by due date B costs related to customers are segmented into different cost pools on the basis of different types of cost drivers or cost-allocation bases C customers making large contributions to the operating income of a company receive a high level of attention from the company D cost allocation of indirect cost is in place Answer: C Diff: 2 Objective: 1 AACSB: Analytical thinking 13 Which of the following illustrates a purpose for allocating costs to cost objects? A the prime cost of a product B the selling price of a product C the contribution margin per unit D the cost of capital Answer: B Diff: 3 Objective: 1 AACSB: Analytical thinking 15 Which purpose of cost allocation is used to encourage sales representatives to push high-margin products or services?
Answer: FALSE Explanation: The allocation of corporate-sustaining costs serves no purpose in assessing customer profitability, decision making, performance evaluation, or motivation. Diff: 2 Objective: 1 AACSB: Analytical thinking 24 Customer-sustaining costs is the costs of activities to support individual customers, regardless of the number of units or batches of product delivered to the customer. Answer: FALSE Explanation: Customers should receive a level of attention from the company that matches their contribution to the company's profitability. Diff: 2 Objective: 1 AACSB: Analytical thinking 29 A customer cost hierarchy categorizes costs related to customers into different cost pools on the basis of different cost drivers.
Answer: FALSE Explanation: Customer-sustaining costs are costs of activities to support individual customers, regardless of the number of units or batches of product delivered to the customer. Diff: 2 Objective: 1 AACSB: Analytical thinking 34 In general, distribution-channel costs are more easily influenced by customer actions than customer batch-level costs. Answer: FALSE Explanation: In general, customer batch-level costs are more easily influenced by customer actions than distribution-channel costs.
Answer: FALSE Explanation: If one of five distribution channels is discontinued, corporate-sustaining costs such as general administration costs will most likely not be affected. Each client pays a fixed monthly service fee based on the number of rooms in the house. Records are kept on the time and material costs used for each repair. Compute the operating income for each of the five customers. What options should Colise Services consider in light of the customer-profitability results? What problems might Colise Services encounter in accurately estimating the operating costs of each customer? Answer: a. Pay increased attention to the profitable customers Stephan and Burnett. Seek ways of reducing costs and increasing revenues for the loss accounts of J Jackson and Paul Saas.
Work with the customers so their behavior reduces overall costs. Reduce costs with better scheduling. Maybe a different fee schedule needs to be implemented depending on the age of the house, the distance to the home, if the repair is preventive or an emergency, etc. Determine whether the operating income pattern will probably continue or not and why. As a last resort, the company may want to discontinue the Jackson account if the customer does not agree to a fee increase and the operating loss pattern is expected to continue.
Problems in accurately estimating operating costs of each customer include: 1. The basic underlying records may not be accurate. Some repair personnel may be efficient and more experienced, others may be less experienced and slower, and still others may "chit-chat" more with the clients than others. Costs that are allocated to more than one customer may be distorting operating income. Answer: Revenues differ because of differences in the quantity purchased and price discounts. Costs differ because different customers place different demands on a company's resources in terms of processing sales orders, making deliveries, and customer support. Answer: Customer-profitability analysis is the reporting and assessment of revenues earned from customers and the costs incurred to earn those revenues. An analysis of customer differences in revenues and costs reveals why differences exist in the operating income earned from different customers. Managers use this information to ensure that customers making large contributions to the operating income of a company receive a high level of attention from the company and that loss-making customers do not use more resources than the revenues they provide.
Which steps the manager of the company can take? Answer: The company managers may decide to strictly enforce its volume-based price discounting policy. The company may also require its salespeople to obtain approval for giving large discounts to customers who do not normally qualify for them. In addition, the company could track future sales to customers who have received sizable price discounts on the basis of their "high growth potential. Objective A will eliminate all corporate costs assigned to and may result in losing more revenues relative to costs saved B will eliminate all costs assigned to and may result in gaining more revenues relative to costs saved C will not eliminate all costs assigned to and may result in losing more revenues relative to costs saved D will not eliminate all corporate costs assigned to and may result in gaining more revenues relative to costs saved Answer: C Diff: 3 Objective: 2 AACSB: Analytical thinking 10 Copyright?
Answer: TRUE Diff: 2 Objective: 2 AACSB: Analytical thinking 6 Managers who utilize customer profitability charts should drop customers that generate a negative customer operating income, since dropping an unprofitable customer will automatically cause overall income to increase. Answer: FALSE Explanation: Managers who utilize customer profitability charts should not drop customers that generate a negative customer operating income, because dropping an unprofitable customer may not cause overall income to increase. Answer: TRUE Diff: 2 Objective: 2 AACSB: Analytical thinking 9 The chart used to express customer profitability is called the whale curve because it is backward-bending at the point where customers start to become unprofitable and thus resembles a humpback. Answer: Customer profitability analysis highlights how individual customers contribute to profitability.
It helps managers determine whether customers who are contributing significantly to profits are receiving a comparable level of attention from the organization. Diff: 2 Objective: 2 11 Copyright? A allocated to divisions using cause-and-effect relationship B allocated to customers using cause-and-effect relationship C added to aggregate operating incomes of the divisions D subtracted as a lump-sum amount after aggregating operating incomes of the divisions Answer: D Diff: 3 Objective: 3 12 Copyright? A motivate changes in customer behavior B evaluate distribution-channel managers C determine the selling price that will cover all costs D find the cause-and-effect relationship Answer: C Diff: 3 Objective: 3 AACSB: Analytical thinking 8 Which of the following is a corporate-sustaining cost? Answer: FALSE Explanation: There is no direct cause-and effect relationship between division-sustaining costs and customer or sales manager's actions. Answer: Cost-hierarchy-based operating income statements allocate only those costs that will be affected by actions at a particular hierarchical level.
For example, costs such as sales-order costs and shipment costs are allocated to customers because customer actions can affect these costs, but costs of managing the wholesale channel are not allocated to customers because changes in customer behavior will have no effect on these costs. A is used less frequently than the other criteria B is the primary criterion used in activity-based costing C considers fairness as a matter of judgment rather than an operational criterion D advocates allocating costs in proportion to the cost object's ability to bear costs allocated to it Answer: B Diff: 2 Objective: 4 AACSB: Analytical thinking 14 Copyright?
A is the primary criterion used in activity-based costing B allocates cost among the beneficiaries in proportion to the benefits each receives. C results in subsidizing products that are not profitable D is used more frequently than any other criteria Answer: C Diff: 2 Objective: 4 AACSB: Analytical thinking 9 Which of the following criteria has the presumption that the more-profitable divisions have a greater ability to absorb corporate administration costs?
A the fairness or equity criterion B the ability to bear criterion C the cause-and-effect criterion D the benefits-received criterion Answer: B Diff: 2 Objective: 4 AACSB: Analytical thinking 10 Which cost-allocation criterion is most likely to subsidize poor performers at the expense of the best performers? A the costs of designing and implementing complex cost allocations are not readily apparent B the benefits of making better-informed pricing decisions are difficult to measure C cost systems are being simplified and fewer multiple cost-allocation bases are being used D the costs of collecting and processing information keep spiraling upward Answer: B Diff: 3 Objective: 4 AACSB: Analytical thinking 12 Today, companies are simplifying their cost systems and moving toward less-detailed and less-complex cost allocation bases.
Answer: FALSE Explanation: Companies are moving toward more-detailed and more-complex cost allocations because today technology can capture these costs in a relatively inexpensive manner. Diff: 2 Objective: 4 AACSB: Analytical thinking 13 Using the fairness criterion, the costs are allocated among the beneficiaries in proportion to the benefits each receives. Answer: FALSE Explanation: Using the benefits received criterion, the costs are allocated among the beneficiaries in proportion to the benefits each receives. Diff: 2 Objective: 4 AACSB: Analytical thinking 14 Under the cause and effect criterion, reasonableness is a matter of judgment rather than an operational criterion. Answer: FALSE Explanation: Under the fairness or equity criterion, reasonableness is a matter of judgment rather than an operational criterion. Answer: FALSE Explanation: The cause-and-effect or benefits-received criteria is considered superior when the purpose of cost allocation is motivation.
Diff: 2 Objective: 4 AACSB: Analytical thinking 17 The benefits of implementing a more-complex cost allocation system are relatively easy to quantify for application of the cost-benefit approach. Answer: 1. Cause and effect - managers identify the variables that cause resources to be consumed. Benefits received - managers identify the beneficiaries of the outputs of the cost object. Fairness or equity - establishing a selling price that is deemed fair by contracting parties.
Ability to bear - advocates allocating costs in proportion to the cost object's ability to bear costs allocated to it. A only fixed costs should be allocated B no homogeneous cost pools should be constructed C all the costs in the cost pool should not have the same or a similar cause-and-effect or benefits-received relationship with the cost-allocation base D allocate both variable and fixed costs to divisions and then to customers Answer: D Diff: 3 Objective: 5 AACSB: Analytical thinking Animer Inc. Answer: FALSE Explanation: The greater the degree of homogeneity, the fewer the cost pools required to accurately explain the use of company resources. Diff: 2 Objective: 5 AACSB: Analytical thinking 20 If a cost pool is homogeneous, the cost allocations using that pool will be the same as they would be if costs of each individual activity in that pool were allocated separately. Answer: Some companies allocate all corporate costs to divisions because corporate costs are incurred to support division activities.
Allocating all corporate costs motivates division managers to examine how corporate costs are planned and controlled. Also, companies that want to calculate the full cost of products in order to make some economic decision must allocate corporate costs to indirect-cost pools of divisions. Some companies do not allocate corporate costs to divisions because these costs are not controllable by division managers. Particularly if performance evaluations are based on these allocations, a company will often not choose to allocate certain corporate costs that are not perceived as being controllable by division management. Other companies allocate only those corporate costs, such as corporate human resources, that are widely perceived as either causally related to division activities or provide explicit benefits to divisions. An allocation base may be used only once. Assume a manufacturing company. Allocation bases for which the information system can provide data: 1.
Energy costs Answer: a. Vice President of Finance's office expenses Operations costs of each department b. Computer operations used in conjunction with manufacturing Hours of computer use per month per department c. Personnel Department Number of employees per department d. Sales-order costs Number of sales orders e. A deducting budgeted contribution margin based on actual units at budgeted mix from budgeted contribution margin based on actual units sold at the actual mix B deducting budgeted contribution margin based on budgeted units at actual mix from budgeted contribution margin based on actual units sold at the budgeted mix C deducting budgeted contribution margin based on actual units at actual mix from budgeted contribution margin based on budgeted units sold at the budgeted mix D deducting budgeted contribution margin based on actual units at actual mix from budgeted contribution margin based on actual units sold at the actual mix Answer: A Diff: 3 Objective: 6 AACSB: Analytical thinking 27 Copyright?
A total budgeted contribution margin by the actual total units B total budgeted contribution margin by the total budgeted units C actual total contribution margin by the total actual total units D actual total contribution margin by the total budgeted units Answer: B Diff: 2 Objective: 6 AACSB: Analytical thinking 28 Copyright? A a new competitor providing better service in the high-margin product sector B a competitor having distribution problems with high-margin products C the company offering low-margin products at a higher price D the company experiencing quality-control problems that get negative media coverage of low-margin products Answer: A Diff: 3 Objective: 6 AACSB: Analytical thinking 29 Copyright?
A a sales-mix variance and the corresponding sales-quantity variance B a flexible-budget amount and the corresponding static-budget amount C a market-share variance and the corresponding market-size variance D a sales-mix variance and the corresponding market size variance Answer: B Diff: 3 Objective: 6 AACSB: Analytical thinking 30 Copyright? A the actual sales mix and the budgeted sales mix B the actual quantity of units sold and the budgeted quantity of unit sales in the static budget C actual contribution margin and the budgeted contribution margin D actual market size in units and the budgeted market size in units Answer: B Diff: 3 Objective: 6 AACSB: Analytical thinking Answer the following questions using the information below: Capity Tea Products has an exclusive contract with British Distributors. Calamine and Capity are two brands of teas that are imported and sold to retail outlets.
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