Accounting

1. Describe activity based management.

2. Why might an organization want to track customer-related costs?

3. Ab Motors manufactures cars and currently uses only 50% of its manufacturing facility (20,000 cars). The company could utilize more of its facility by producing its own tires and using the total capacity. It currently purchases tires at $30 per unit. Ab would incur $12 per unit for direct materials, $10 for direct labor, and $24 for overhead (which is 30% variable) if it produces the tires.
a.Should Ab Motors make or buy the tires? Provide calculations that support your answer.
b.Suppose Ab Motors could rent the unused portion of its plant and receive $1,500 a month. Should the company make or buy the tires?  Provide calculations that support your answer
c.List two qualitative factors that could affect this decision.

4. Explain the methods used to allocate Supporting department costs.

5. The SABI Company undertakes the following activities in its production operation and incurred the following costs during the first half of 20×2:
Harvest oranges$25,000
Prepare oranges for processing20,000
Extract juice from oranges18,000
Process juice into orange juice concentrate, orange
juice, or orange popsicles30,000
Package completed products9,000
In addition to the costs listed above, processing the juice into 3 final products involves the use of 2 machines, each of which incurred depreciation costs of $10,000 for the first half of 20×2.  Each product requires a different set up on the processing machines, so SABI normally sets up the machines to produce concentrate for the first week of each month using 80 machine hours.  The machine is then set up to produce orange juice for the next 2 weeks using 160 machine hours.  Finally, workers set up the same machines to produce orange popsicles during the last week of each month, using 80 machine hours.
During the first half of 20×2, 20% of the oranges harvested were turned into orange juice concentrate, 50% were processed into orange juice, and 30% became orange popsicles. The orange juice concentrate operation takes up 40% of SABI’s total factory space.  Regular orange juice and orange popsicles occupy 35% and 25%, respectively.

a.Calculate the total costs included in the processing activity cost pool.
b.Choose a cost driver for the processing activity and explain your choice.  Calculate the ABC allocation rate for this activity.
c.Allocate processing costs to each product line using the ABC allocation rate developed in part (b).

6. Explain Financial Reporting Objectives of federal government

7. Martin Township decides to construct a new city hall. Based on the following data, prepare a statement of revenues, expenditures, and changes in fund balance for Martin Township’s Capital Projects Fund. All transactions occur within the calendar year 2013.
a.The Fund starts and ends the year with a zero fund balance.
b.The Fund’s financing sources for the city hall project were: long-term bond proceeds – $5 million; operating transfer from the General Fund – $2 million; state grant – $1 million; interest from the temporary investment of cash – $70,000.
c.Total outlays for constructing the new city hall were: construction costs – $7,200,000; design and construction supervision fees – $600,000.
d.City laws require that, whenever bonds are used, any remaining difference between total financing sources and construction costs must be transferred to the Debt Service Fund.  Therefore, $270,000 was transferred to the Debt Service Fund.

8. Multiple-choice
1. A wholly owned subsidiary sold land to its parent during the year at a gain. The parent continues to hold the land at the end of the year. The amount to be reported as consolidated net income for the year should equal:
A. the parent’s separate operating income, plus the subsidiary’s net income.
B.the parent’s separate operating income, plus the subsidiary’s net income, minus the intercompany gain.
C. the parent’s separate operating income, plus the subsidiary’s net income, plus the intercompany gain.
D. the parent’s net income, plus the subsidiary’s net income, minus the intercompany gain.

3. Any intercompany gain or loss on a downstream sale of land should be recognized in consolidated net income:
I. in the year of the downstream sale.
II. over the period of time the subsidiary uses the land.
III. in the year the subsidiary sells the land to an unrelated party.
A. I
B. II
C. III
D. I or II

4. Parent Company owns 70% of Son Company’s outstanding stock. During 20X1 Son Company sold land to Parent Company for a gain of $25,000. Parent company held the land all of 20X1. The gain on the sale to Parent should be:
A. recorded on Son’s books as a gain of $25,000 and then eliminated during the consolidation process.
B. deferred by Son until Parent sells the land to an outside party.
C. recorded on Son’s books as a gain of $17,500 and eliminated during the consolidation process.
D. recorded on Parent’s book as a gain of $17,500 and eliminated during the consolidation process.

5. Using the fully adjusted equity method, an intercompany gain on an upstream sale of land is:
A. recognized by the parent and the deferral is shared between the controlling and noncontrolling stockholders of the subsidiary.
B. recognized by the subsidiary and the deferral is shared between the controlling and noncontrolling stockholders of the subsidiary.
C. deferred by the subsidiary until the land is sold to an entity outside the consolidated group.
D. recognized by the subsidiary and the deferral is completely allocated to the controlling stockholders of the subsidiary.

6. Based on the information provided, in the preparation of the 20X8 consolidated financial statements, building will be _____ in the eliminating entries.
A. debited for $33,000
B. debited for $36,000
C. credited for $36,000
D. debited for $3,000

8. Based on the preceding information, in the preparation of the 20X8 consolidated financial statements, equipment will be:
A. debited for $1,000.
B. debited for $10,000.
C. credited for $15,000.
D. debited for $25,000.
9. Based on the preceding information, the gain on sale of the equipment recorded by Mortar for 20X8 is:
A. $150,000
B. $65,000
C. $110,000
D. $40,000
10.. Based on the preceding information, in the preparation of the 20X9 consolidated financial statements, equipment will be:
A. debited for $1,000.
B. debited for $10,000.
C. credited for $15,000.
D. debited for $25,000.

9. On January 1, 20X7, Jones Company acquired 90 percent of the outstanding common stock of Smith Corporation for $1,242,000. On that date, the fair value of noncontrolling interest was equal to $138,000. The entire differential was related to land held by Smith. At the date of acquisition, Smith had common stock outstanding of $520,000, additional paid-in capital of $200,000, and retained earnings of $540,000. During 20X7, Smith sold inventory to Jones for $440,000. The inventory originally cost Smith $360,000. By year-end, 30 percent was still in Jones’ ending inventory. During 20X8, the remaining inventory was resold to an unrelated customer. Both Jones and Smith use perpetual inventory systems. Income and dividend information for both Jones and Smith for 20X7 and 20X8 are as follows:
Assume Jones uses the fully adjusted equity method to account for its investment in Smith.
Required:
Present the worksheet elimination entries necessary to prepare consolidated financial statements for 20X7

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