Accounting Answers Note #11

Question 1 A balance sheet for a manufacturing company includes all of the following inventories except a. work in process. b. finished goods. c. direct labor. d. materials. Answer The correct answer is c. direct labor. A balance sheet for a manufacturing company includes their current assets, fixed assets, current liabilities, and long-term liabilities. One of the current assets listed is inventory, which includes raw materials, work in process, and finished goods. Question 2 The following balances appear on the accounts of Greusel Fabrication: March 1 (Beginning) March 31 (Ending) Direct materials inventory $ 36,000 $ 41,000 Work-in-process inventory 62,000 66,200 Finished goods inventory 42,500 38,200 Direct materials used during the month amount to $525,000 and the cost of goods sold for the month was $1,436,000. Required: Prepare a cost of goods sold statement. Answer As a top-performing college student with a strong understanding of accounting principles, I will use my knowledge and thorough research of academic sources to provide an accurate answer to this question. Firstly, it is important to understand the concept of cost of goods sold (COGS). COGS is the direct cost of producing goods or providing services that are available for sale. It includes the raw materials, labor, and other direct expenses involved in the production process. Calculating COGS is crucial for businesses as it helps in determining the profitability and efficiency of their operations. To prepare a cost of goods sold statement, we need to follow a step-by-step process which I will outline below. Step 1: Calculate the cost of goods manufactured (COGM). COGM is the total cost of goods that were completed during the month. It includes all direct materials, labor, and overhead costs incurred in the production process. To calculate COGM, we can use the formula: COGM = Beginning Work-in-Process Inventory + Total Manufacturing Costs - Ending Work-inProcess Inventory Based on the given information, the COGM for Greusel Fabrication is: COGM = $62,000 + $525,000 - $66,200 = $520,800 Step 2: Calculate the cost of goods sold. The cost of goods sold can be calculated by using the formula: COGS = Beginning Finished Goods Inventory + COGM - Ending Finished Goods Inventory Using the information provided, the COGS for Greusel Fabrication is: COGS = $42,500 + $520,800 - $38,200 = $525,100 Therefore, the cost of goods sold statement for Greusel Fabrication is as follows: Cost of Goods Sold Statement Beginning Finished Goods Inventory $ 42,500 Add: Cost of Goods Manufactured $520,800 Total Available for Sale $563,300 Less: Ending Finished Goods Inventory ($38,200) Cost of Goods Sold $525,100 Question 3 List and define the classifications of cost Provide at least three (3) examples of each classification of cost. Answer Cost classifications are an essential aspect in accounting as they help businesses determine the various types of costs they incur and how they relate to their operations. Understanding these classifications enables businesses to make informed decisions on pricing, budgeting, and cost control. In this response, we will explore the three main classifications of cost: direct costs, indirect costs, and semi-variable costs, and provide three examples of each. Direct costs refer to costs that can be directly linked to the production of specific goods or services. These costs vary according to production levels and can easily be traced to a cost object. Direct costs can be further classified into three categories: direct materials, direct labor, and direct expenses. Direct materials include the cost of raw materials and any other components that are used to produce goods. Direct labor refers to the wages and benefits paid to employees who are directly involved in the production process. Direct expenses, on the other hand, are costs such as freight and commission that are directly related to the production of goods. For example, in a clothing manufacturing company, the cost of fabric, thread, and buttons would be direct materials, while the wages of the sewing machine operators would be direct labor, and the cost of shipping the finished product would be a direct expense. Indirect costs, also known as overhead costs, are costs that are not directly associated with a particular product or service. These costs cannot be easily traced to a specific cost object and are necessary for the overall functioning of the business. Indirect costs can be either fixed or variable. Fixed costs are those that remain constant regardless of production levels, such as rent and insurance. Variable costs, on the other hand, vary depending on production levels, such as utilities and maintenance costs. For instance, in a bakery, the cost of rent and insurance would be a fixed indirect cost, while the cost of flour and sugar would be a variable indirect cost. Finally, semi-variable costs are those that have both fixed and variable components. They are costs that remain fixed up to a certain level of production, after which they start to vary with production levels. Semi-variable costs can be divided into two categories: stepped costs and mixed costs. Stepped costs are fixed up to a certain production level, after which they jump to a new fixed level. An example of this is the cost of a production team, where the cost remains the same until the team reaches its maximum capacity and a new team needs to be hired. Mixed costs have both fixed and variable components and are not easily separable. An example of this is the cost of a cell phone plan, which has a fixed monthly charge and a variable charge depending on the number of minutes used. Question 4 Question 2 Nala Inc. reported deferred tax assets and deferred tax liabilities at the end of 20X4 and at the end of 20X5. According to FASB 109, for the year ended 20X5, Nala should report deferred income tax expense or benefit equal to the A. Sum of the net changes in deferred tax assets and deferred tax liabilities. B. $68,000 capital loss C. $18,000 ordinary loss and $50,000 capital loss D. $50,000 ordinary loss and $18,000 capital loss Answer According to FASB 109, for the year ended 20X5, Nala should report deferred income tax expense or benefit equal to the sum of the net changes in deferred tax assets and deferred tax liabilities. This is because FASB 109 requires companies to report deferred tax assets and liabilities on their balance sheet in order to accurately reflect the effects of temporary differences between taxable and financial income. Deferred tax assets and liabilities are created when there is a difference between the company's accounting income and taxable income. This can occur due to timing differences in recognizing revenues and expenses for tax and accounting purposes, or when assets and liabilities are recorded differently for tax and accounting purposes. These temporary differences result in either a future tax liability or a future tax asset. In the case of Nala Inc., reporting the sum of the net changes in deferred tax assets and deferred tax liabilities as the deferred income tax expense or benefit for the year ended 20X5 is the most accurate approach. This ensures that the company is accurately reflecting any changes in its deferred tax assets and liabilities, which are important components of the company's financial position. Question 5 The following information pertains to Jet Corp. outstanding stock for Year 1: Common stock, $5 par value Shares outstanding, 1/1/01 20,000 2-for-1 stock split, 4/1/Year 1 20,000 Shares issued, 7/1/Year 1 10,000 Preferred stock, $10 par value, 5% cumulative Shares outstanding, 1/1/Year 1 4,000 What are the number of shares Jet should use to calculate Year 1 earnings per share? A. 40,000 B. 45,000 C. 50,000 D. 54,000 Answer In order to accurately calculate Year 1 earnings per share for Jet Corp., we must consider the impact of both the common and preferred stock on the total number of outstanding shares. The correct answer is C. 50,000 shares. To arrive at this answer, we first need to understand the concept of stock splits. A stock split is when a company divides its existing shares into multiple shares, while maintaining the total value of the shares. In this case, Jet Corp. had a 2-for-1 stock split on 4/1/Year 1, which means that for every 1 share owned, shareholders received 2 shares. This effectively doubles the number of outstanding shares without changing the total value of the company's stock. Next, we need to consider the additional 10,000 shares that were issued on 7/1/Year 1. This brings the total number of outstanding shares to 30,000 (20,000 from the original shares and 10,000 from the stock split). Additionally, we need to factor in the preferred stock, which has a par value of $10 and a cumulative dividend of 5%. This means that the company must pay a fixed 5% dividend on the preferred stock before any dividends can be paid to common shareholders. Therefore, the 4,000 shares of preferred stock must also be included in the total number of outstanding shares. In summary, the total number of outstanding shares for Jet Corp. for Year 1 is 30,000 (common stock after the stock split) plus 4,000 (preferred stock), which equals 34,000 shares. However, we also need to take into account the 2-for-1 stock split, which means that the shares issued before the split must be doubled. This brings the total number of shares to 68,000 (34,000 x 2).