Expenditures capitalized as long-lived assets generally include those expenditures that:
are material and that have an economic benefit to the entity that extends beyond the current year
Accounting for natural resources
involves estimating the quantity of the natural resource to be recovered
When a firm buys land on which there is a building, and the building is torn down so that an appropriate new building can be constructed on the land
the total cost of the land and old building are capitalized as land cost.
The net book value of a depreciable asset is
the difference between the asset's cost and accumulated depreciation.
When a company issues a bond at a premium:
the investors' interest income will be less than the interest received each year.
If the market price of a bond exceeds its face amount:
the coupon rate is more than the market interest rate.
When the high-low method of estimating a cost behavior pattern is used
the cost and volume data must be reviewed for outliers.
The concept of operating leverage refers to
Operating income changes proportionately more than revenues for any given change in activity level.
An example of a cost likely to have an indirect relationship with products being manufactured
electricity costs for packaging equipment
The potential rental value of space used in the manufacturing process:
is an opportunity cost if production is not outsourced.
A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset
The entry to record depreciation on long-term assets
decreases total assets and decreases earnings before taxes
depreciation method results in equal depreciation expense for each year of an asset's useful life
If you owed $200 at the end of each year for the next three years, the present value of the obligation would be:
less than it would be if you had to pay $300 today and $300 at the end of this year.
Noncurrent, intangible assets such as leasehold improvements, patents, and copyrights are all subject to:
Goodwill is an asset that arises because the present value of an acquired company's estimated future earnings, discounted at the acquiring firm's ROI is
more than the fair market value of the net assets of the acquired company.
Accrued expense examples
payroll taxes owed by the employer for the year. property taxes owed to local governments for the year. salaries and wages owed to employees at the end of the year. estimated product warranty costs on products sold during the year.
When choosing between issuing common stock and issuing bonds, managers of corporations should take into account
the tax advantages to the company of deducting the interest costs on bonds. the demands placed upon their company by stockholders who expect to be paid quarterly dividends. the risks associated with having to make fixed interest payments on bonds at predetermined times. the impact that the choice will have on their company's leverage.
The recognition of liabilities often results in:
the recognition of expenses. a more conservative representation of financial position. a decrease in net income. a decrease in ROI.
In reference to the Discount on Bonds Payable and Premium on Bonds Payable accounts
The Discount on the Bonds Payable account is amortized by a credit entry each period
Interest on a note payable is most appropriately accrued:
as of the end of each accounting period during which the note is a liability.
The difference between the rate of return earned on assets (ROI) and the rate of return earned on owners' equity (ROE).
Consolidated financial statements refer to
The parent's and subsidiary's financial statements are reported on a combined basis.
Rights for common stock ownership
Electing directors. Liability limited to amount invested. Approving changes in corporate charter.
Rights for preferred stock
Having a priority claim to dividends relative to the common stock's claim to dividends. Having a priority claim in liquidation relative to the common stock's claim in liquidation. Having a claim to dividends that is cumulative over time if the annual dividend requirement is not satisfied.
The number of shares of a class of stock that are outstanding is the
shares issued minus the shares held in the treasury.
A stock dividend is similar to a cash dividend in that
retained earnings and the amount of potential future dividends is reduced by each.
The principal reason for a company having a common stock split is to:
decrease the market value per share of common stock.
Similarities between preferred stock and bonds
Each has a fixed claim to annual income (dividends and interest, respectively). Each has a fixed claim on assets (liquidating value and principal amount, respectively). Each may be callable and/or convertible.
Managerial accounting, as opposed to financial accounting, is primarily concerned with
Emphasizing the future.
Activities included in a generally accepted definition of the management process include:
Planning, organizing, and controlling.
The contribution margin income statement:
Reports expenses based upon cost behavior pattern rather than cost function.
A job order costing system would probably be appropriate for a firm that produces
stained glass windows
Suppose your accounting textbook is the cost object of concern. The paper used to print the textbook is a
Costs may be allocated to a product or activity for many purposes, but care must be exercised when using allocated costs because:
Arbitrarily allocated costs may not behave in the way assumed in the allocation method.
sequence of flow of costs for a manufacturing firm
Raw materials, work-in-process, finished goods, cost of goods sold.
When a manufacturing firm has a highly automated plant, the most probable basis for applying manufacturing overhead costs to units produced would be:
Overapplied overhead would result when
Overhead applied to production exceeds actual overhead costs incurred.
Benefits of Budgeting
Budgeting provides benchmarks against which performance can be measured. Budgeting forces managers to concentrate on planning and to formalize their planning efforts. Budgeting requires different functional areas of the firm to communicate and coordinate activities.
When costs are classified according to a time horizon perspective
Costs are labeled committed or discretionary
The amount of production to budget would be calculated as
Ending inventory + sales - beginning inventory.
Is a budget that is revised monthly by adding a new month at the end of the 12-month budget period.
Is a budget for a single unit of product. Is a budget for a single unit of product. Identifies the price and quantity of production resources that should be incurred to produce each unit of product. Can be used by manufacturing firms and service organizations.
Attainable standards, as compared to ideal standards:
Are more likely to elicit employee enthusiasm.
In considering whether to accept a special order at a price less than the normal selling price of the product, but the additional sales will make use of presently idle capacity these are relevant costs
fixed manufacturing overhead that can be avoided. Direct materials. Variable overhead. Direct labor.
Chuck's investment proposal would be inferior to Edna's proposal if it was expected to have a
Longer payback period.
If the net present value of a proposed investment is positive:
The cost of capital is lower that the internal rate of return.
If an asset costs $32,000, has an expected useful life of 10 years, is expected to have a $4,000 salvage value and generates net annual cash inflows of $8,000 a year, the cash payback period is:
The type of costs included in a management analysis relating to a capital budgeting decision should be limited to:
A capital budgeting technique that considers the time value of money is the:
Internal rate of return.