The following are nine technical accounting terms introduced or emphasized in this chapter:

$$\begin{array}{lll}\text { Responsibility margin } & \text { Transfer price } & \text { Common fixed costs } \\ \text { Contribution margin } & \text { Cost-plus transfer price } & \text { Traceable fixed costs } \\ \text { Performance margin } & \text { Product costs } & \text { Committed fixed costs }\end{array}$$

Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms.

b. Cost to produce plus a predetermined markup.

The Enormous State University’s Accounting Society has decided to produce a version of the ballet Swan Lake, in which all the female roles (including all of the swans) will be danced by men, and vice versa. Here are the main characters: Prince Siegfried. Prince Siegfried’s Mother. Princess Odette, the White Swan. The Evil Duke Rotbart. Odile, the Black Swan. Cygnet #1, young swan. Cygnet #2, young swan. Cygnet #3, young swan. The ESU Accounting Society has on hand a total of 4 female dancers and 12 male dancers who are to be considered for the main roles. How many possible casts are there?

The Lyric Opera of Chicago is one of the largest and best-managed opera companies in the United States. Managing opera productions requires advance planning, including the development of scenery, costumes, and stage properties and the sale of tickets. To measure how well the company is operating in any given year, management must apply accrual accounting to these and other transactions. At year-end, April 30, 2011, Lyric Opera’s balance sheet showed deferred production costs and other assets of $1,978,322 and deferred ticket and other revenue of$12,710,639. What accounting policies and adjusting entries are applicable to these accounts? Why are they important to Lyric Opera’s management?

The mailroom employees send all remittances and remittance advices to the cashier. The cashier deposits the cash in the bank and forwards the remittance advices and duplicate deposit slips to the Accounting Department.

a. Indicate the weak link in internal control in the handling of cash receipts.

b. How can the weakness be corrected?

Listed below are nine technical accounting terms used in this chapter:

$$\begin{array}{lll}\text { Unrecorded revenue } & \text { Adjusting entries } & \text { Accrued expenses } \\ \text { Book value } & \text { Matching principle } & \text { Accumulated depreciation } \\ \text { Unearned revenue } & \text { Materiality } & \text { Prepaid expenses }\end{array}$$

Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms.
h. An expense representing the systematic allocation of an asset's cost over its useful life.

The following situations describe decision scenarios that could use managerial accounting information:

1. The manager of High Times Restaurant wants to determine the price to charge for various lunch plates.
2. By evaluating the cost of leftover materials, the plant manager of a precision tool facility wants to determine how effectively the plant is being run.
3. The division controller of West Coast Supplies needs to determine the cost of products left in inventory.
4. The manager of the Maintenance Department of a large manufacturing company wants to plan next year's anticipated expenditures.

For each situation, discuss how managerial accounting information could be used.

Mary Wade owns a small business that rents parking spaces to students at the local university. Mary’s typical rental contract requires the student to pay the year’s rent of $720 ($60 per month) in advance. When Mary prepares financial statements at the end of December, her accountant requires that Mary spread the $720 over the 12 months that a parking space is rented. Therefore, Mary can recognize only$240 revenue (4 months) from each contract in the year the cash is collected and must defer recognition of the remaining $480 (8 months) to next year. Mary argues that getting students to agree to rent the parking space is the most difficult part of the activity so she ought to be able to recognize all$720 as revenue when the cash is received from a student.

Required:

Explain why generally accepted accounting principles require the use of accrual accounting rather than cash-basis accounting for transactions like the one described here.

Test your understanding of accounting for plant assets, natural resources, and intangibles by answering the following questions. Select the best choice from among the possible answers given. Which statement about depreciation is false? a. Depreciation is a process of allocating the cost of an asset to expense over its useful life. b. Obsolescence as well as physical wear and tear should be considered when determining the period over which an asset should be depreciated. c. Depreciation should not be recorded in years in which the market value of the asset has increased. d. A major objective of depreciation accounting is to allocate the cost of using an asset against the revenues it helps to generate.

Visit the website of the SEC (https://www.sec.gov/edgar/searchedgar/companysearch.html). Search for the latest Form 10-K for a company you would like to analyze. Submit a short memo that

C. State the changes identified in (A), (B), and (C) in accounting equation format. If the “change” equation does not balance, explain why not. Hint: Double-check your calculations, and if the accounting equation change still does not balance, search for notes in the company’s files about prior period adjustments, which will often explain why balances may differ.

i. Provide the web link to the company’s Form 10-K to allow accurate verification of your answers.

Katie Vote owns a small business that rents computers to students at the local university for the 9-month school year. Katie’s typical rental contract requires the student to pay the year’s rent of $1,800 ($200 per month) in advance. When Katie prepares financial statements at the end of December, her accountant requires that Katie spread the $1,800 over the 9 months that a computer is rented. Therefore, Katie can recognize only$800 revenue (4 months) from each computer rental contract in the year the cash is collected and must defer recognition of the remaining $1,000 (5 months) to next year. Katie argues that getting students to agree to rent the computer is the most difficult part of the activity so she ought to be able to recognize all$1,800 as revenue when the cash is received from a student.

Required:

Explain why generally accepted accounting principles require the use of accrual accounting rather than cash-basis accounting for transactions like the one described here.

Listed below are nine technical accounting terms:

$$\begin{array}{lll}\text { Variable costs } & \text { Relevant range } & \text { Contribution margin } \\ \text { Break-even point } & \text { Fixed costs } & \text { Semivariable costs } \\ \text { Economies of scale } & \text { Sales mix } & \text { Unit contribution margin }\end{array}$$

Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms.

e. Unit sales price minus variable cost per unit.

Alsup Consulting sometimes performs services for which it receives payment at the conclusion of the engagement, up to six months after services commence. Alsup recognizes service revenue for financial reporting purposes when the services are performed. For tax purposes, revenue is reported when fees are collected. Service revenue, collections, and pretax accounting income for 2017–2020 are as follows:

There are no differences between accounting income and taxable income other than the temporary difference described above. The enacted tax rate for each year is$40 \%$.

Required:

1. Prepare the appropriate journal entry to record Alsup's 2018 income taxes.
2. Prepare the appropriate journal entry to record Alsup's 2019 income taxes.
3. Prepare the appropriate journal entry to record Alsup's 2020 income taxes.

Listed below are nine technical accounting terms:

$$\begin{array}{lll}\text { Variable costs } & \text { Relevant range } & \text { Contribution margin } \\ \text { Break-even point } & \text { Fixed costs } & \text { Semivariable costs } \\ \text { Economies of scale } & \text { Sales mix } & \text { Unit contribution margin }\end{array}$$

Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms.

g. Costs that respond to changes in sales volume by less than a proportionate amount.

Listed below are nine technical accounting terms used in this chapter:

$$\begin{array}{lll}\text { Unrecorded revenue } & \text { Adjusting entries } & \text { Accrued expenses } \\ \text { Book value } & \text { Matching principle } & \text { Accumulated depreciation } \\ \text { Unearned revenue } & \text { Materiality } & \text { Prepaid expenses }\end{array}$$

Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms.
f. A type of account credited when customers pay in advance for services to be rendered in the future.