Chapter 4 - Accounting Analysis

In: Business and Management

Submitted By agaoporanku
Words 2422
Pages 10
RECOGNITION OF ASSETS

Accountants define assets as resources that a firm owns or controls as a result of past business transactions, and which are expected to produce future economic benefits that can be measured with a reasonable degree of certainty.

Distortions in asset values generally arise because there is ambiguity about whether: * The firm owns or controls the economic resources in question: * Are the ventures controlled? * Are the leased assets owned by the lessee or the lessor? * Have the revenues resulting in the receivables been earned? * The economic resources are likely to provide future economic benefits that can be measured with reasonable certainty. * the economic benefits from research and development are generally considered highly uncertain * If all firms expense R&D, financial statements will reflect differences in R&D success only when new products are commercialized rather than during the development process (less timely). The analyst may attempt to correct for this distortion by capitalizing key R&D outlays and adjusting the value of the intangible asset based on R&D updates. * The fair values of assets fall below their book values. * An asset is impaired when its fair value falls below its book value. An impairment loss is recognized when book value exceeds the greater of its net selling price and the discounted cash flows expected to be generated from future use. * Markets for many non-current operating assets are illiquid and incomplete, making it highly subjective to infer their fair values. * If the cash flows of an individual asset cannot be identified, IAS 36 requires that the impairment test be carried out for the smallest possible group of assets that has identifiable cash flows, called the cash generating unit. Consequently, considerable…...

Similar Documents

Test Bank Accounting Chapter 4

... prepared after this business combination? A. $0 B. $25,000 C. $70,000 D. $45,000 2. On December 31, 20X9, Add-On Company acquired 100 percent of Venus Corporation's common stock for $300,000. Balance sheet information Venus just prior to the acquisition is given here: At the date of the business combination, Venus's net assets and liabilities approximated fair value except for inventory, which had a fair value of $60,000, land which had a fair value of $125,000, and buildings and equipment (net), which had a fair value of $250,000. 3. Based on the information provided, what amount of inventory will be included in the consolidated balance sheet immediately following the acquisition? A. $60,000 B. $75,000 C. $15,000 D. $45,000 4. Based on the information provided, what amount of goodwill will be included in the consolidated balance sheet immediately following the acquisition? A. $30,000 B. $15,000 C. $85,000 D. $45,000 Based on the information provided, what amount will be included as investment in Venus Corporation in the consolidated balance sheet immediately following the acquisition? A. $0 B. $395,000 C. $255,000 D. $300,000 5. Enya Corporation acquired 100 percent of Celtic Corporation's common stock on January 1, 20X9. Summarized balance sheet information for the two companies immediately after the combination is provided: 6. Based on the preceding information, the amount of differential associated with the acquisition is: A. $0. B. $58,000. C.......

Words: 3367 - Pages: 14

Chapter 4 Solution Accounting

...CHAPTER 4 Accrual Accounting Concepts Study Objectives 1. Explain the revenue recognition principle and the matching principle. 2. Differentiate between the cash basis and the accrual basis of accounting. 3. Explain why adjusting entries are needed, and identify the major types of adjusting entries. 4. Prepare adjusting entries for deferrals. 5. Prepare adjusting entries for accruals. 6. Describe the nature and purpose of the adjusted trial balance. 7. Explain the purpose of closing entries. 8. Describe the required steps in the accounting cycle. 9. Understand the causes of differences between net income and cash provided by operating activities. 10. Describe the purpose and the basic form of a worksheet. Summary of Questions by Study Objectives and Bloom’s Taxonomy |Item | | 1. | | 1. | | 1. | | 1. ...

Words: 9678 - Pages: 39

Managerial Accounting Chapter 4 Dq's

...Chapter 4 DQ’s 1. Overhead costs are not directly related to production volume, therefore cannot be traced to units of product in the same way that DM and DL can. 2. Plantwide Rate, Departmental Rate, and Activity-Based Costing 3. These measures are usually readily available in most manufacturing settings and are closely related to volume-bases measures. 4. It is easier to use, only one rate to be allocated to all products. 5. Overhead costs are logically related to the base used to determine the rate and all costs are consumed by products in the same proportions. 6. A cost object is anything to which costs would be assigned. (Units of Product, Product Lines, Departments, Activities, and Projects. 7. If not all overhead costs are related to the base and if products consume resources in different proportions, some products will be assigned too much overhead costs and some too little. 8. Departmental Overhead Rates are more accurate because they reflect the costs of each driver in various departments. With a plantwide overhead rate, some important cost differences would be lost due to the lumping of all costs into one rate. 9. Departmental and Plantwide overhead rates can be similar in the fact that they pool together costs that could be incurred differently. They differ because the departmental rates recognize differences among departments and assign overhead to products based on the driver that makes the most sense for each......

Words: 463 - Pages: 2

Management Accounting Chapter 1

...CHAPTER 1 FUNDAMENTAL CONCEPTS Questions, Exercises, Problems, and Cases: Answers and Solutions 1.1 The first question at the end of each chapter requires the student to review the important concepts or terms discussed in the chapter. In addition to the definitions or descriptions in the chapter, the end of the book has a glossary. 1.2 Titles could be Controller, Vice-President of Finance, or Chief Financial Officer. 1.3 The two major uses of managerial accounting information are (1) information for managerial decision making (for example, make-or-buy decisions, store closure decisions, capital investment decisions), and (2) information for managerial control and performance evaluation (for example, budgeting, comparing actual performance with norms or standards). The first use, which is the focus of Part II of this book, usually requires special purpose reports that estimate how revenues, costs, and investments will differ among the alternatives being considered. The second use, which is the focus of Part III of this book, usually involves routine monthly, quarterly, and annual performance reports. Information for planning requires estimates of future costs, revenues, and other data, while information for performance evaluation is generally based on data about the past. 1.4 Total Quality Management (TQM) means the organization is managed to excel on all dimensions and quality is ultimately defined by the customer. Under total quality management,......

Words: 3147 - Pages: 13

Quantitative Analysis for Management Chapter 4

...REVISED M04_REND6289_10_IM_C04.QXD 5/7/08 2:49 PM Page 46 C H A P T E R Regression Models 4 15 9 40 20 25 25 15 35 6 4 16 6 13 9 10 16 TEACHING SUGGESTIONS Teaching Suggestion 4.1: Which Is the Independent Variable? We find that students are often confused about which variable is independent and which is dependent in a regression model. For example, in Triple A’s problem, clarify which variable is X and which is Y. Emphasize that the dependent variable (Y ) is what we are trying to predict based on the value of the independent (X) variable. Use examples such as the time required to drive to a store and the distance traveled, the totals number of units sold and the selling price of a product, and the cost of a computer and the processor speed. Teaching Suggestion 4.2: Statistical Correlation Does Not Always Mean Causality. Students should understand that a high R2 doesn’t always mean one variable will be a good predictor of the other. Explain that skirt lengths and stock market prices may be correlated, but raising one doesn’t necessarily mean the other will go up or down. An interesting study indicated that, over a 10-year period, the salaries of college professors were highly correlated to the dollar sales volume of alcoholic beverages (both were actually correlated with inflation). Teaching Suggestion 4.3: Give students a set of data and have them plot the data and manually draw a line through the data. A discussion of which line is “best” can help them......

Words: 3989 - Pages: 16

Chapter 4

...Chapter 04 The Corporate Culture -Impact and Implications True / False Questions  1.Due to diverse employee groups and management styles, the work culture of a large global firm in one country will differ significantly from the work culture of the same firm halfway around the world.  FALSE Despite the fact that corporations have many locations, with diverse employee groups and management styles, an individual working for a large global firm in one country will share various aspects of her or his working culture with someone working for the same firm halfway around the world. 2. Corporate culture shapes, and is shaped, by the people who are members of the organization.  TRUE While culture shapes the people who are members of the organization, it is also shaped by the people who comprise it.  3. Differing individual perception of culture makes it easier to define the specific culture within an organization.  FALSE Defining the specific culture within an organization is not an easy task since it is partially based on each participant's perception of the culture. 4. In situations where an organization lacks strong leadership for ethical decision making despite the clarity of law, the business culture is likely to be the determining factor in the decision.  FALSE In situations where the law provides an incomplete answer for ethical decision making, the business culture is likely to be the determining factor in the decision.   5. Organizations with similar......

Words: 4352 - Pages: 18

Target Profit and Break Even Analysis; Case 4-33; Managerial Accounting

...Target Profit And Break Even Analysis; Case 4-33; Managerial Accounting Case 4-33: Cost Structure; Target Profit and Break Even Analysis Question 1: Compute Pittman Company’s break-even point in sales dollars for next year assuming: a. The agents’ commission remains unchanged at 15% $12,000,000 in sales is needed to break even while employing an outside sales force with commissions of 15% of sales. b. The agents’ commission rate is increased to 20% $13,714,286 in sales is needed to break even while employing an outside sales force with commissions of 20% of sales. c. The company employs its own sales force. $15,000,000 in sales is needed to break even while employing the company's own sales force with commissions of 7.5% of sales. Before Pittman Company’s break-even point in sales can be determined, we must initially “reformat” the provided Budgeted Income Statement for the Year Ended December 31 (for the next year) to reflect a Contribution Income Statement format. The reason for this application is to separate the Variable and Fixed costs associated in selling telecommunications equipment to derive pertinent data needed to determine break even sales. The restructuring of each Income Statement may be found in Appendix A of this report. Reformatting the Income Statement allows us to determine first, the Contribution Margin. The Contribution Margin is significant in determining Break-even point whether by the number of units to break......

Words: 343 - Pages: 2

Chapter 4 Accounting 210

...Chapter 4: ABC Practice Problems Warner Inc. sells a high-speed retrieval system for mining information. It provides the following information for the year.   | Budgeted | Actual | Overhead cost | $1,000,000 | $950,000 | Machine hours | 50,000 | 45,000 | Direct labor hours | 100,000 | 92,000 | | | What is the predetermined overhead rate based on machine hours? Estimated MOH = $1,000,000 = $20/MH Est. activity base 50,000 Machine hours (MH) If the company used a predetermined OH rate based on direct labor hours(LH), how much was the overhead over or under applied? POR=Predetermined Overhead Rate $1,000,000 = $10/LH POR x actual activity usag = $10 x 92,000 LH’s = $920,000 OH applied 100,000 LH’s MOH JE actual | applied | $950,000 | $920,000 | $30,000 under-applied Hollins, Inc., a manufacturer of computer chips, employs activity-based costing. The budgeted data for each of the activity cost pools is provided below for the year 2014. Activity Cost Pools | Estimated Overhead | Expected Use of Cost Drivers per Activity | Ordering and receiving | $   90,000 divided by | 12,000 | Orders =$7.50/order | Machining |    480,000 divided by | 60,000 | machine hours =$8/MH | Soldering |  1,760,000 divided by | 440,000 | labor hours =$4/LH | | | For 2014, the company had 11,000 orders and used 50,000 machine hours, and labor hours totaled 500,000. What is the......

Words: 499 - Pages: 2

Chapter 4

...process. The way these decisions are communicated to others is also studied. LEARNING OUTCOMES/OBJECTIVES 1. Compare the roles of ethics, values, and morals in the world of business. 2. Identify the roles and effects of social issues in the workplace. 3. Create a global framework for ethical decision-making. 4. Construct the reasons why character counts. 5. Translate (communicate) ethics to the organizational culture. DEFINITION OF “A WEEK” (OR “A UNIT”) A week (or a unit) starts and ends at approximately midnight Sunday night during each of the seven weeks. COURSE REQUIREMENTS Quizzes A quiz is scheduled each week, and will cover information assigned in the current week. The quizzes are located under Quizzes on Bb. The weekly quizzes will be “alive” for a week’s duration (Sunday midnight to Sunday midnight) and may be taken as many times as you wish during that week. Case Analyses For Units 1-7, case study analyses will be assigned. Each person will analyze the assigned case study. All cases must follow the “Rubric for Ethics Case Analyses” provided on Bb. Be insightful, thorough, and creative. The written case analysis should be submitted via email. Discussion Board Students will be required to individually address questions about an assigned case on Bb Discussion Board. They are not only to respond to the professor’s questions but also to respond to other students’ responses. Responses will be graded on depth of thought,......

Words: 2380 - Pages: 10

Chapter 4 Analysis of Financial Statements

...CHAPTER 4 ------------------------------------------------- ANALYSIS OF FINANCIAL STATEMENTS 1. A firm wants to strengthen its financial position. Which of the following actions would increase its quick ratio? a. Offer price reductions along with generous credit terms that would (1) enable the firm to sell some of its excess inventory and (2) lead to an increase in accounts receivable. b. Issue new common stock and use the proceeds to increase inventories. c. Speed up the collection of receivables and use the cash generated to increase inventories. d. Use some of its cash to purchase additional inventories. e. Issue new common stock and use the proceeds to acquire additional fixed assets. Answer: a 2. Amram Company’s current ratio is 2.0. Considered alone, which of the following actions would lower the current ratio? a. Borrow using short-term notes payable and use the proceeds to reduce accruals. b. Borrow using short-term notes payable and use the proceeds to reduce long-term debt. c. Use cash to reduce accruals. d. Use cash to reduce short-term notes payable. e. Use cash to reduce accounts payable. Answer: b A quick scan of the alternatives would indicate that b is obviously correct—it would lower the CR. Since there is only one correct answer, b must be the right answer. The following equation can also be used. If you add equal amounts to the numerator and denominator, then if Orig CR = or > 1.0, CR will decline,......

Words: 3707 - Pages: 15

Chapter 4 Accounting

...what it has to do to be entitled to payment 2) Seller has no involvement or control over the goods sold c. Same as above 3) Collection of payment is assured d. Collectability – seller must have reasonable expectation of being paid e. If no reasonable expectation – can not recognize revenue f. Uncollectable amount has to be able to be estimated 4) Amount of revenue can be reasonable measurable 5) Costs of earning revenue can be reasonably measured g. Measurability criteria h. Must be able to measure how much was earned and the costs to earn it i. If seller isn’t able to estimate costs that occur even after the critical event ex warrenty, cnat recognize it What is the sixth criterion for revenue recognition and why is it so important? Sixth criterion: * The critical event selected should provide a reasonable and fair representation of the entities activities, given the needs of the stake holders * Manger should assess if the critical point is fair and reasonable * Important because accounting information must provide useful imformation so stakeholders can be informed What is the gradual approach to recognizing revenue? * Recognizing revenue bit by bit over the entire earnings period * Used when critical point approach can not be used and the gradual approach is practical and necessary How do you determine the percentage of a project that has been completed? ...

Words: 453 - Pages: 2

System Analysis Chapter 4 Quiz Questions

...Test #1 - Systems Analysis, Chapter 4 Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Which of the following describes what the system is required to do? |a. |Functional requirements |c. |User requirements | |b. |General requirements |d. |Technical requirements | ____ 2. ____ requirements describe operational characteristics related to the environment. |a. |Performance |c. |Reliability | |b. |Technical |d. |Usability | ____ 3. ____ prototypes are not built with the intent of being fully functional, but to check the feasibility of certain approaches to the business need. |a. |Functional |c. |Workflow | |b. |Discovery |d. |Logical | ____ 4. A ____ model shows what the system is supposed to do in great detail, without committing to any one technology. |a. |logical |c. |vertical ......

Words: 584 - Pages: 3

Chapter 4

...materials purchased: 85,000 pounds at a cost of $32,300 Direct labor worked: 390 hours at a cost of $4,875 Variable manufacturing overhead incurred: $1,475 Inventory of direct materials on Jan. 31: 3,000 pounds 22. The materials price variance for January is: A) $1,640 F. B) $1,640 U. C) $1,700 F. D) $1,300 U. Answer: C MPV = (.38 - .40) 85,000 = 1,700 F AP = 32,300/85,000, SP = 8.00/20 lbs 23. The materials quantity variance for January is: A) $800 U. B) $300 U. C) $300 F. D) $750 F. Answer: A MQV = (82,000 – 80,000) .4 = 800 U AQ = 85,000 Purch – 3,000 EI, SQ = 20 lbs X 4000 bags produced 24. The labor rate variance for January is: A) $475 F. B) $475 U. C) $585 F. D) $585 U. Answer: D LRV = (12.50 – 11.00) 390 = 585 U AR = 4,875/390, SR = 1.10 X 10 25. The labor efficiency variance for January is: A) $475 F. B) $350 U. C) $130 U. D) $110 F. Answer: D LEF = (390 – 400) 11.00 = 110F SQ = 4000 bags produced X .1 DL hour Use the following to answer questions 26-27: The following selected data pertain to Beck Co.'s Beam Division for last year: Sales ......

Words: 1970 - Pages: 8

Chapter 4

...Chapter 4 The economics of Financial Reporting Regulation The case for unregulated markets for accounting information * Support for unregulated marketing all relate to the incentives for a firm to report information about itself to owners and to the capital market. * Agency theory explains why incentives exist for voluntary reporting to owners. * Wider voluntary reporting to the capital market is explained by signaling theory * The arguments supporting unregulated markets for accounting information are largely deductive in nature. Agency Theory * Predicts and explains the behavior of parties involved with the firm. * It conceives of the firm itself as a nexus of agency relationship and seeks to understand organizational behavior by examining how parties to agency relationships within the firm maximize their own utility. * One major relationship is between the management group and the owners of the firm. * Managers are hired to administer the firms’ activities. * Owners and Managers may have different goals and may not be in perfect agreement. While owners are interested to maximize return of investment and security prices, managers have a wider range of economic interests and psychological needs. Because of this conflict, owners communicate with managers in such a way as to minimize conflict between the goals of two groups. * Costs relating to monitoring management reduce managers’ compensation. Therefore managers have an...

Words: 3948 - Pages: 16

Chapter 4

...Check Figures for Problems and Cases Ray Garrison, Eric Noreen, and Peter Brewer Managerial Accounting, 14th Edition |Chapter 1 | | |No check figures | | | | | |Chapter 2 | | |Problem 2-14 |(2) Net operating income: $19,000 | |Problem 2-17 |(3) Total cost: 283,500 pesos | |Problem 2-18 |(2) Shipping expense: Y = £20,000 + £8.00X | |Problem 2-19 |(1) Y = $800 + $40X | |Problem 2-21 |(4) Total cost $182,100 | |Problem 2-22 |Cost of shipping finished goods:......

Words: 2202 - Pages: 9