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Principles of Accounting II
1. (Ignore income taxes in this problem.) Gull Inc. is
considering the acquisition of equipment
that costs $570,000 and has a useful life of 6 years with no
salvage value. The incremental
net cash flows that would be generated by the equipment are:
Incremental net cash flows
Year 1 $148,000
Year 2 $204,000
Year 3 $153,500
Year 4 $170,500
Year 5 $160,500
Year 6 $139,500
If the discount rate is 10%, the net present value of the
investment is closest to: (Use exhibit11b-
1, exhibit11b-2)

rev: 12_14_2012, 12_21_2012
$406,000
$262,884
$143,116
$713,116
2.
Jerston Company has an annual plant capacity of 3,000 units.
Data concerning this product are given
below:
Annual sales at regular selling
prices
2,800 units
Manufacturing costs:
Variable $ 26 per unit
Fixed (annual) $ 74,500
Selling and administrative
expenses:
Variable (sales commissions) $ 9 per unit

Fixed (annual) $ 17,000
The company has received a special order for 200 units at a
selling price of $60 each. Regular sales
would not be affected, and sales commissions on the 200 units
would be reduced by one-third. This
special order would have no impact on total fixed costs.
Required:
a. Determine the net advantage (disadvantage) for the special
order. (Input the amount as a positive
http://ezto-demo.mhecloud.mcgraw-
hill.com/servlet/TestPilot4/laserwords2/13357912481508611.tp
4/exhibit11b-1.jpg
4/exhibit11b-1.jpg
4/exhibit11b-2.jpg
value.)
(Click to select)
$
b. The company should accept the special order.
Yes

No
3. Coakley Beet Processors, Inc., processes sugar beets in
batches. A batch of sugar beets
costs $52 to buy from farmers and $14 to crush in the
company's plant. Two intermediate
products, beet fiber and beet juice, emerge from the crushing
process. The beet fiber can
be sold as is for $30.00 or processed further for $19.00 to make
the end product industrial
fiber that is sold for $39.00. The beet juice can be sold as is for
$47.20 or processed
further for $33.04 to make the end product refined sugar that is
sold for $78. How much
profit (loss) does the company make by processing the
intermediate product beet juice
into refined sugar rather than selling it as is?
$(68.24)
$(26.04)
$(16.24)

$(2.24)
4.
The Litton Company has established standards as follows:
Direct material: 3 pounds per unit @ $5.20 per pound = $15.60
per unit
Direct labor: 2 hours per unit @ $8 per hour = $16 per unit
Variable manufacturing overhead: 2 hours per unit @ $3 per
hour = $6 per unit
Actual production figures for the past year are given below. The
company records the materials price variance when
materials are purchased.
Units produced 1,800 units
Direct material used 5,660 pounds
Direct material purchased (6,660) pounds $23,976
Direct labor cost (3,500 hours) 29,050
Variable manufacturing overhead cost incurred $10,520
The company applies variable manufacturing overhead to
products on the basis of standard direct labor-hours.

The materials quantity variance is:
$260 F
$1,352 U
kf
Sticky Note
net advantage
net disadvantage
$5,660 U
$260 U
5. Financial statements of Ansbro Corporation follow:
Comparative Balance Sheet
Ending
Balance
Beginning
Balance
Assets:

Cash and cash equivalents $78 $59
Accounts receivable 127 102
Inventory 72 53
Property, plant and equipment 658 620
Less accumulated depreciation 402 313
Total assets $533 $521
Liabilities and stockholder's equity:
Accounts payable $79 $106
Bonds payable 230 236
Common stock 121 118
Retained earnings 103 61
Total liabilities and stockholder's equity $533 $521
Income Statement
Sales $875
Cost of goods sold 506
Gross margin 369
Selling and administrative expenses 209

Net operating income 160
Income taxes 48
Net income $112
Cash dividends were $70. The company did not dispose of any
property, plant, and equipment. It
did not issue any bonds payable or repurchase any of its own
common stock. The following
question pertain to the company's statement of cash flows.
The net cash provided by (used in) operating activities for the
year was:
$130
$112
$160
$18
6. (Ignore income taxes in this problem.) Rushforth

Manufacturing has $126,000 to invest in
either Project A or Project B. The following data are available
on these projects:
Project A Project B
Cost of equipment needed now $126,000 $58,000
Working capital investment needed now $68,000
Annual cash operating inflows $56,000 $30,400
Salvage value of equipment in 6 years $19,000
Both projects will have a useful life of 6 years. At the end of 6
years, the working capital
investment will be released for use elsewhere. Rushforth's
required rate of return is 11%.
The net present value of Project B is: (Round your 'PV factors'
to three decimal places.
Round your other intermediate calculations and final answer to
the nearest whole
dollar.) (Use exhibit11b-1, exhibit11b-2)
rev: 12_14_2012, 12_21_2012
$13,860
$70,622

$39,002
$2,622
7. Carpon Lumber sells lumber and general building supplies to
building contractors in a
medium-sized town in Montana. Data regarding the store's
operations follow:
• Sales are budgeted at $450,000 for November, $460,000 for
December, and $480,000
for January.
• Collections are expected to be 70% in the month of sale, 27%
in the month following
the sale, and 3% uncollectible.
• The cost of goods sold is 75% of sales.
• The company desires to have an ending merchandise inventory
equal to 60% of the next
month's cost of goods sold. Payment for merchandise is made in
the month following the
purchase.
• Other monthly expenses to be paid in cash are $26,600.
• Monthly depreciation is $19,000.
• Ignore taxes.
Statement of Financial Position
October 31
Assets

Cash $22,000
Accounts receivable (net of allowance for uncollectible
accounts) 80,000
Inventory 202,500
Property, plant and equipment (net of $609,000 accumulated
depreciation) 1,149,000
Total assets $1,453,500
4/exhibit11b-1.jpg
4/exhibit11b-2.jpg
Liabilities and Stockholders' Equity
Accounts payable $135,000
Common stock 700,000
Retained earnings 618,500
Total liabilities and stockholders' equity $1,453,500
The accounts receivable balance, net of uncollectible accounts,
at the end of December would be:

$138,000
$124,200
$115,000
$322,000
8. LHU Corporation makes and sells a product called Product
WZ. Each unit of Product
WZ requires 1.6 hours of direct labor at the rate of $6.00 per
direct labor-hour.
Management would like you to prepare a Direct Labor Budget
for June.
The company plans to sell 19,500 units of Product WZ in June.
The finished goods
inventories on June 1 and June 30 are budgeted to be 600 and
140 units, respectively.
Budgeted direct labor costs for June would be:
$191,616
$187,200

$182,784
$114,240
9.
Diorio Corporation keeps careful track of the time required to
fill orders. The times recorded for a
particular order appear below:
Hours
Move time 4.6
Wait time 24.9
Queue time 7.2
Process time 3.3
Inspection time 0.2
The throughput time was:
32.1 hours
40.2 hours

15.3 hours
8.1 hours
10. (Ignore income taxes in this problem.) Czaplinski
Corporation is considering a project
that would require an investment of $823,000 and would last for
6 years. The incremental
annual revenues and expenses generated by the project during
those 6 years would be as
follows:
Sales $224,000
Variable expenses 30,000
Contribution margin 194,000
Fixed expenses:
Salaries 29,000
Rents 21,000
Depreciation 83,000
Total fixed expenses 133,000
Net operating income $61,000

The scrap value of the project's assets at the end of the project
would be $42,000. The payback
period of the project is closest to:
6.6 years
5.7 years
12.9 years
13.5 years
11. The Tingey Company has 500 obsolete microcomputers that
are carried in inventory at a
total cost of $744,000. If these microcomputers are upgraded at
a total cost of $103,000,
they can be sold for a total of $208,000. As an alternative, the
microcomputers can be
sold in their present condition for $51,200.
Suppose the selling price of the upgraded computers has not
been set. At what selling
price per unit would the company be as well off upgrading the
computers as if it just sold

the computers in their present condition? (Round your answer to
one decimal place.)
$308.4
$795.2
$216.24
$102.4
12. Aide Industries is a division of a major corporation. Data
concerning the most recent year
appears below:
Sales $18,000,000
Average operating assets $4,600,000
The division's margin is closest to:
30.7%
20.0%

25.6%
5.1%
13.
Eckels Wares is a division of a major corporation. The
following data are for the latest year of operations:
Sales $ 32,400,000
Net operating income $ 1,782,000
Average operating assets $ 12,000,000
The company's minimum required rate of return 12 %
Required:
a. What is the division's margin? (Round your answer to 2
decimal places.)
Margin %
b. What is the division's turnover? (Round your answer to 2
decimal places.)

Turnover times
c.
What is the division's return on investment (ROI)? (Do not
round intermediate calculations and
round your final answer to 2 decimal places.)
Return on investment %
d. What is the division's residual income?
Residual income $
14.
Gentile Corporation makes a product with the following
standard costs:
Standard
Quality or Hours
Standard Price or
Rate

Inputs
Direct materials 7.5 kilos $6.00 per kilo
Direct labor 0.9 hours $12.40 per hour
Variable overhead 0.9 hours $6.90 per hour
The company produced 6,100 units in May using 38,530 kilos of
direct material and 4,600 direct
labor-hours. During the month, the company purchased 40,870
kilos of the direct material at
$7.30 per kilo. The actual direct labor rate was $18.90 per hour
and the actual variable overhead
rate was $6.60 per hour.
The company applies variable overhead on the basis of direct
labor-hours. The direct materials
purchases variance is computed when the materials are
purchased.
The variable overhead efficiency variance for May is:
$6,141 U
$5,874 F

$6,141 F
$5,874 U
15.
(Ignore income taxes in this problem.) Farah Corporation has
provided the following data concerning a
proposed investment project:
Initial investment $ 460,000
Life of the project 9 years
Working capital required $ 15,000
Annual net cash inflows $ 92,000
Salvage value $ 48,000
The company uses a discount rate of 12%. The working capital
would be released at the end of the
project.
Required:
Compute the net present value of the project. (Round "PV
Factor" to 3 decimal places. Round your
other intermediate calculations and final answers to the nearest
whole dollar.)(Use Exhibit 11B-
1,Exhibit 11B-2)
Net present value $

16. The West Division of Shekarchi Corporation had average
operating assets of $622,000 and
net operating income of $80,300 in March. The minimum
required rate of return for performance
evaluation purposes is 15%.
4/exhibit11b-1.jpg
4/exhibit11b-1.jpg
4/exhibit11b-2.jpg
What was the West Division's residual income in March?
-$12,045
-$13,000
$13,000
$12,045

17. (Ignore income taxes in this problem.) Sibble Corporation is
considering the purchase of a
machine that would cost $320,000 and would last for 5 years. At
the end of 5 years, the machine
would have a salvage value of $49,000. By reducing labor and
other operating costs, the machine
would provide annual cost savings of $74,000. The company
requires a minimum pretax return
of 12% on all investment projects. The net present value of the
proposed project is closest
to: (Round your 'PV factors' to three decimal places.) (Use
Exhibit11B-1 and Exhibit11B-2)
rev: 12_14_2012
-$25,447
-$4,230
-$41,958
-$53,230
18. A customer has requested that Inga Corporation fill a
special order for 3,200 units of product

K81 for $27 a unit. While the product would be modified
slightly for the special order, product
K81's normal unit product cost is $22.10:
Direct materials $6.00
Direct labor 4.60
Variable manufacturing overhead 3.30
Fixed manufacturing overhead 8.20
Unit product cost $22.10
Direct labor is a variable cost. The special order would have no
effect on the company's total
fixed manufacturing overhead costs. The customer would like
modifications made to product
K81 that would increase the variable manufacturing costs by
$1.50 per unit and that would
require an investment of $11,200 in special molds that would
have no salvage value.
This special order would have no effect on the company's other
sales. The company has ample
spare capacity for producing the special order. If the special
order is accepted, the company's
overall net operating income would increase (decrease) by:

$(320)
$15,680
4/exhibit11b-1.jpg
4/exhibit11b-2.jpg
$25,920
$(22,720)
19. Diltex Farm Supply is located in a small town in the rural
west. Data regarding the store's
operations follow:
• Sales are budgeted at $280,000 for November, $260,000 for
December, and $270,000 for
January.
• Collections are expected to be 65% in the month of sale, 32%
in the month following the sale,
and 3% uncollectible.
• The cost of goods sold is 60% of sales.
• The company desires to have an ending merchandise inventory

at the end of each month equal
to 50% of the next month's cost of goods sold. Payment for
merchandise is made in the month
following the purchase.
• Other monthly expenses to be paid in cash are $25,500.
• Monthly depreciation is $16,500.
• Ignore taxes.
Statement of Financial Position
October 31
Assets
Cash $22,000
Accounts receivable (net of allowance for uncollectible
accounts) 78,000
Merchandise inventory 84,000
Property, plant and equipment (net of $50 accumulated
depreciation) 962,000
Total assets $1,146,000
Liabilities and Stockholder' Equity
Accounts payable $130,000
Common stock 900,000
Retained earnings 116,000

Total liabilities and stockholder' equity $1,146,000
Accounts payable at the end of December would be:
$159,000
$78,000
$156,000
$81,000
20. Newburn Corporation's most recent balance sheet appears
below:
Ending
Balance
Beginning
Balance
Asset:

Inventory 63 73
Liabilities and stockholders' equity:
Common stock 61 60
Retained earnings 34 (47)
Total liabilities and stockholders'
equity.
$487 $446
The company's net income for the year was $86 and it did not
sell or retire any property, plant,
and equipment during the year. Cash dividends were $5. The net
cash provided by (used in)
investing activities for the year was:
$(46)

$(13)
$13
$46
21. Nussey Clinic uses client-visits as its measure of activity.
During May, the clinic budgeted
for 2,600 client-visits, but its actual level of activity was 2,530
client-visits. The clinic has
provided the following data concerning the formulas used in its
budgeting and its actual results
for May:
Data used in budgeting:
Fixed
element per
month
Variable
element per
client-visit
Revenue − $52.00

Personal expenses $18,950 11.60
Medical supplies 675 7.30
Occupancy expenses 5,600 1.40
Administrative expenses 3,600 0.50
Total expenses $ 28,825 $ 20.80
Actual results for May:
Revenue $134,090
Personal expenses $47,000
Medical supplies $19,500
Occupancy expenses $9,042
Administrative expenses $4,100
The spending variance for occupancy expenses in May would be
closest to:
$100 F

$100 U
$198 U
$198 F
22. Schleich Corporation's most recent balance sheet appears
below:
Ending
Balance
Beginning
Balance
Assets:
Inventory 56 69

Liabilities and stockholder's equity:
Accrued liabilities 32 23
Income taxes payable 52 43
Common stock 99 88
Retained earnings 262 41
Total liabilities and stockholder's equity $673 $492
Net income for the year was $282. Cash dividends were $61.
The company did not sell or retire
any property, plant, and equipment during the year. The net
cash provided by operating activities
for the year was:
$416
$367
$306

$24
23. Last year Burford Company's cash account decreased by
$31,800. Net cash used in investing
activities was $10,500. Net cash provided by financing
activities was $24,300. On the statement
of cash flows, the net cash flow provided by (used in) operating
activities was:
$13,800
$(45,600)
$(31,800)
$(18,000)
24. The Varone Company makes a single product called a Hom.
The company has the capacity
to produce 46,000 Homs per year. Per unit costs to produce and
sell one Hom at that activity
level are:

Direct materials $35
Direct labor $25
Variable manufacturing overhead $20
Fixed manufacturing overhead $7
Variable selling & administrative expense $23
Fixed selling & administrative expense $7
The regular selling price for one Hom is $135. A special order
has been received at Varone from
the Fairview Company to purchase 9,500 Homs next year at
15% off the regular selling price. If
this special order were accepted, the variable selling expense
would be reduced by 25%.
However, Varone would have to purchase a specialized machine
to engrave the Fairview name
on each Hom in the special order. This machine would cost
$13,500 and it would have no use
after the special order was filled. The total fixed costs, both
manufacturing and selling, are
constant within the relevant range of 34,500 to 46,000 Homs per
year. Assume direct labor is a
variable cost.

If Varone can expect to sell 32,000 Homs next year through
regular channels, at what special
order price from Fairview should Varone be economically
indifferent between either accepting
or not accepting this special order? (Round your answer to two
decimal places.)
$103.00
$105.72
$98.67
$114.75
25. Young Enterprises has budgeted sales in units for the next
five months as follows:
June 5,900 units
July 8,500 units
August 6,700 units
September 8,100 units

October 5,100 units
Past experience has shown that the ending inventory for each
month should be equal to 24% of
the next month's sales in units. The inventory on May 31 fell
short of this goal since it contained
only 1,400 units. The company needs to prepare a Production
Budget for the next five months.
The total number of units to be produced in July is:
8,068 units
10,108 units
8,932 units
8,500 units
26. The Gomez Company, a merchandising firm, has budgeted
its activity for December
according to the following information:
• Sales at $540,000, all for cash.
• Merchandise Inventory on November 30 was $270,000.
• The cash balance at December 1 was $24,000.

• Selling and administrative expenses are budgeted at $32,000
for December and are paid for in
cash.
• Budgeted depreciation for December is $26,000.
• The planned merchandise inventory on December 31 is
$280,000.
• The cost of goods sold represents 62% of the selling price.
• All purchases are paid for in cash.
The budgeted cash receipts for December are:
$205,200
$566,000
$540,000
$334,800
27.
Yewston Hotel bases its budgets on guest-days. The hotel's
static budget for April appears below:
Budgeted number of guest-days 3,800
Budgeted variable costs:
Supplies (@$3.60 per guest-day) $13,680

Laundry (@$9.60 per guest-day) 36,480
Total variable cost 50,160
Budgeted fixed costs:
Wages and salaries 17,480
Occupancy costs 57,000
Total fixed cost 74,480
Total cost $124,640
The total variable cost at the activity level of 5,450 guest-days
per month should be:
$71,940
$159,140
$50,160
$67,640
28. Austin Wool Products purchases raw wool and processes it
into yarn. The spindles of yarn

can then be sold directly to stores or they can be used by Austin
Wool Products to make afghans.
Each afghan requires one spindle of yarn. Current cost and
revenue data for the spindles of yarn
and for the afghans are as follows:
Data for one spindle of yarn:
Selling price $20
Variable production cost $12.0
Fixed production cost (based on 4,800 spindles of yarn
produced) $6.0
Data for one afghan:
Selling price $56
Production cost per spindle of yarn $18
Variable production cost to process the yarn into an afghan
$17
Avoidable fixed production cost to process the yarn into an
afghan (based on 4,800 afghans produced) $9.0
Each month 4,800 spindles of yarn are produced that can either
be sold outright or processed into

afghans.
If Austin chooses to produce 4,800 afghans each month, the
change in the monthly net operating
income as compared to selling 4,800 spindles of yarn is:
$48,000 decrease.
$57,600 decrease.
$48,000 increase.
$57,600 increase.
29. Resendes Refiners, Inc., processes sugar cane that it
purchases from farmers. Sugar cane is
processed in batches. A batch of sugar cane costs $53 to buy
from farmers and $21 to crush in
the company's plant. Two intermediate products, cane fiber and
cane juice, emerge from the
crushing process. The cane fiber can be sold as is for $31.50 or
processed further for $20.75 to
make the end product industrial fiber that is sold for $41.75.
The cane juice can be sold as is for

$38.00 or processed further for $26.60 to make the end product
molasses that is sold for $86.
How much profit (loss) does the company make by processing
the intermediate product cane
juice into molasses rather than selling it as is?
$(0.40)
$21.40
$52.60
$(14.35)
30. Tolentino Kennel uses tenant-days as its measure of
activity; an animal housed in the kennel
for one day is counted as one tenant-day. During November, the
kennel budgeted for 3,300
tenant-days, but its actual level of activity was 3,340 tenant-
days. The kennel has provided the
following data concerning the formulas used in its budgeting
and its actual results for November:
Data used in budgeting:

Fixed
element per
month
Variable
element per
tenant-day
Revenue − $29.40
Wages and salaries $2,100 $6.30
Expendables 800 10.60
Facility expenses 7,600 3.10
Administrative expenses 5,800 0.30
Total expenses $16,300 $20.30
Actual results for November:
Revenue $92,996
Wages and salaries $22,582
Expendables $37,560
Facility expenses $14,060

Administrative expenses $6,455
The net operating income in the flexible budget for November
would be closest to:
$30,030
$30,394
$14,094
$13,730
31. Hocking Corporation's comparative balance sheet appears
below:
Ending
Balance
Beginning
Balance
Assets:

Current assets:
Cash and cash equivalents $70,800 $31,200
Accounts receivable 26,800 33,200
Inventory 69,800 68,200
Prepaid expenses 14,800 18,200
Total current assets 182,200 150,800
Property, plant and equipment 373,000 347,000
Loss accumulated depreciation 169,600 145,000
Net property, plant, and equipment 203,400 202,000
Total assets $385,600 $352,800
Liabilities and Stockholder's Equity:
Current liabilities:
Accounts payable $20,200 $15,200
Accrued liabilities 68,200 56,200
Income taxes payable 57,200 53,200
Total current liabilities 145,600 124,600
Bonds payable 85,200 87,200

Total liabilities 230,800 211,800
Stockholder's equity:
Common stock 34,800 30,000
Retained earnings 120,000 111,000
Total stockholder's equity 154,800 141,000
Total liabilities and stockholder's equity $385,600 352,800
The company's net income (loss) for the year was $11,600 and
its cash dividends were $2,600. It
did not sell or retire any property, plant, and equipment during
the year. The company uses the
indirect method to determine the net cash provided by operating
activities.
The company's net cash provided by operating activities is:
$65,400
$28,000
$67,000
$52,200

32. (Ignore income taxes in this problem.) Rogers Company is
studying a project that would
have a ten-year life and would require an $1,100,000 investment
in equipment which has no
salvage value. The project would provide net operating income
each year as follows for the life
of the project:
Sales $650,000
Less cash variable expenses 122,000
Contribution margin 528,000
Less fixed expenses:
Fixed cash expenses $260,000
Depreciation expenses 92,000 352,000
The company's required rate of return is 8%. What is the
payback period for this
project? (Round your answer to two decimal places.)
6.25 years

4.10 years
2.08 years
3.09 years
33. The following transactions occurred last year at Jogger
Company:
Issuance of shares of the company's own common
stock.
$116,000
Dividends paid to the company's own shareholders $3,600
Sale of long-term investment $4,600
Interest paid to lenders $9,200
Retirement of the company's own bonds payable $106,000
Proceeds from sale of the company's used equipment $30,800
Purchase of new equipment $174,500
Based solely on the above information, the net cash provided by
financing activities for the year
on the statement of cash flows would be:

$(2,800)
$444,700
$(146,800)
$6,400

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