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Chapter 16: 7RQ (page 884)
Describe a merchandising company, and give an example.
The merchandising company sells products that are not produced by them and the examples are Walmart and Aptos.
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In 100 words or fewer, explain the difference between product costs and period costs. In your explanation, explain the inventory accounts of a manufacturer.
Question:Gateway produces electronic calculators. Suppose Gateway’s standard cost per calculator is \(25 for direct materials and \)68 for conversion costs. The following data applyto August activities:
Direct materials purchased (on account) \( 8,300
Conversion costs incurred 20,500
Number of calculators produced 300 calculators
Number of calculators sold (on account, at \)105 each) 295 calculators
Requirements
1. Prepare summary journal entries for August using JIT costing, including the entryto adjust the Conversion Costs account.
2. The beginning balance of Finished Goods Inventory was $1,300. Use a T-accountto find the ending balance of Finished Goods Inventory.
Selected data for three companies are given below. All inventory amounts are ending balances and all amounts are in millions.
Company A Company B Company C
Cash \( 6 Wages Expense \) 12 Administrative Expenses $ 4
Net Sales Revenue 48 Equipment 32 Cash 25
Finished Goods Inventory 10 Accounts Receivable 8 Net Sales Revenue 75
Cost of Goods Sold 23 Service Revenue 65 Selling Expenses 8
Selling Expenses 4 Cash 34 Merchandise Inventory 12
Equipment 67 Rent Expense 12 Equipment 55
Work-in-Process Inventory 9 Accounts Receivable 19
Accounts Receivable 14 Cost of Goods Sold 25
Cost of Goods Manufactured 23
Administrative Expenses 7
Raw Materials Inventory 6
Identifying differences between service, merchandising, and manufacturing companies
Using the above data, determine the company type. Identify each company as a service company, merchandising company, or manufacturing company
Comparing managerial accounting and financial accounting
For each of the following, indicate whether the statement relates to managerial accounting (MA) or financial accounting (FA):
e. Reports audited annually by independent certified public accountants
Question:Applying ethical standards
Natalia Wallace is the new controller for Smart Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, James Cauvet, the company president, asks Wallace how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 13% for the first time in the company’s five-year history. Cauvet explains that financial analysts have again predicted a 13% earnings growth for the company and that he does not intend to disappoint them. He suggests that Wallace talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies:
a. Persuade suppliers to postpone billing \(13,000 in invoices until January 1.
b. Record as sales \)115,000 in certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of the next year’s sales are included in this year’s sales.
d. Reduce the estimated Bad Debts Expense from 5% of Sales Revenue to 3%, given the company’s continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. How might these inconsistencies affect the company’s creditors and stockholders?
3. What should Wallace do if Cauvet insists that she follow all of these suggestions?
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