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Interpret the results of a regression analysis of a mixed cost,Analyze a mixed cost using high-low analysis,Apply a cost equation to the process of ...

    Acc 220

    Coursepack

    Fall 2005

    (all sections)

    Handouts &

    Practice Exams

    TABLE OF CONTENTS

     Page # HANDOUTS/ASSIGNMENTS:

    Chapter Objectives ----------------------------------------------------------- 3 Comparison of Forms of Business Ownership ---------------------------- 8 Transaction analysis steps worksheet -------------------------------------- 9 Cash Basis of Accounting transaction analysis worksheet ----------- 10 Deferrals and Accruals notes ------------------------------------------------ 11 Accrual Basis of Accounting transaction analysis worksheet -------- 13 Process Costing Problems & Solutions ------------------------------------ 14 Chapter 6: Class Notes ------------------------------------------------------- 20 Present Value Problems ------------------------------------------------------ 22

    PRACTICE EXAM QUESTIONS:

    Selecting a Form of Business Ownership --------------------------------- 24 The Role of Accounting in Business --------------------------------------- 25 The Cash Basis of Accounting ---------------------------------------------- 27 The Accrual Basis of Accounting ------------------------------------------ 30 Introduction to Taxation ----------------------------------------------------- 34 Managerial Accounting Ch 1 --------------------------------------------- 36 Managerial Accounting Ch 2 --------------------------------------------- 37 Managerial Accounting Ch 3 --------------------------------------------- 41 Managerial Accounting Ch 4 --------------------------------------------- 47 Managerial Accounting Ch 5 --------------------------------------------- 48 Managerial Accounting Ch 6 --------------------------------------------- 51 Managerial Accounting Ch 7 --------------------------------------------- 59 Managerial Accounting Ch 8 --------------------------------------------- 64 Managerial Accounting Ch 9 --------------------------------------------- 68 Managerial Accounting Ch 10 -------------------------------------------- 71 Managerial Accounting Ch 11 -------------------------------------------- 73

     2

    NC STATE UNIVERSITY - DEPARTMENT OF ACCOUNTING

    ACC 220

    CHAPTER OBJECTIVES

Text: ―Introduction to Financial Accounting and Income Tax for Business Entities‖

    Chapter 2 -- Selecting a Form of Business Ownership

    Students should be able to:

    1. Contrast the proprietorship, partnership (general, limited and limited liability) and corporate

    forms of business ownership (including S-corporations).

    2. Describe the advantages and disadvantages of the sole proprietorship, partnership and corporate

    forms of business ownership,

    3. Contrast C-corporations and S-corporations, and

    4. Describe methods of owning existing businesses.

    Chapter 1-- The Role of Accounting in Business

    Students should be able to:

    1. Describe the types and forms of businesses, business strategies, value chains and stakeholders,

    2. Describe the three business activities of financing, investing and operating,

    3. Define accounting and its role in business,

    4. Describe and illustrate the basic financial statements and how they interrelate, and

    5. Describe eight basic accounting concepts underlying financial reporting. Chapter 2-- The Cash Basis of Accounting

    Students should be able to:

    1. Describe the basic elements of a financial accounting system,

    2. Describe the cash and accrual bases of accounting,

    3. Use the cash basis of accounting to analyze, record and summarize transactions for a business,

    4. Use the cash basis of accounting to prepare financial statements (income statement, balance sheet

    and retained earnings statement) , and

    5. Describe the advantages and disadvantages of the cash basis of accounting. Chapter 3-- The Accrual Basis of Accounting

    Students should be able to:

    1. Describe the accrual basis of accounting, and

    2. Use the accrual basis of accounting to analyze, record, and summarize transactions.

     3

Chapter 1-- Introduction to Taxation

    Students should be able to:

    1. Distinguish between progressive, proportional and regressive tax rates,

    2. Identify the various taxes affecting business enterprises including taxes on the production and

    sale of goods, employment taxes, death taxes, gift taxes, property taxes, taxes on privileges and

    rights, and income taxes,

    3. Distinguish between the basic tax formula for individuals and taxable business entities,

    4. Calculate the taxable income and income tax for an individual taxpayer,

    5. Calculate the taxable income and income tax for a corporate taxpayer,

    6. Distinguish between the income taxation of proprietorships, partnerships, corporations and S-

    corporations,

    7. Distinguish between and calculate marginal and average tax rates,

    8. Explain the concept of implicit taxes and the impact of taxes on investment decisions,

    9. Describe the taxation of capital gains and losses, and

    10. Recognize the economic, social, equity and political considerations that underlie the tax law. Text: Managerial Accounting: A Focus on Decision Making by Jackson and Sawyers

    Chapter 1 -- Accounting Information and Managerial Decisions

    Students should be able to:

    1. Describe the uses and users of accounting information,

    2. Contrast financial and managerial accounting and distinguish between the information needs of

    external and internal users,

    3. Describe the three primary activities of managers and the three primary functional areas of an

    organization

    4. Explain the role of the managerial accountant

    5. Describe and apply the decision-making role of managers,

    6. Apply a basic four-step decision-making model,

    7. Evaluate the role of relevant factors in decision making,

    8. Evaluate the role of risk in decision making, and

    9. Evaluate the role of ethics in decision making.

    Chapter 2Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows Students should be able to:

    1. Describe the production process in a traditional manufacturing environment and a just-in-time

    (JIT) environment,

    2. Describe the components of manufacturing costs,

    3. Contrast manufacturing and nonmanufacturing costs,

    4. Describe cost flows in a manufacturing company,

    5. Calculate the cost of goods manufactured and cost of goods sold using the cost of goods sold

    model, and

    6. Contrast product and period costs as they flow to the income statement.

     4

Chapter 3 Job Costing, Process Costing and Operations Costing

    Students should be able to:

    1. Describe, comprehend, and contrast job costing, operations costing and process costing,

    2. Analyze the issues related to the measurement of direct materials, direct labor and overhead costs

    in job costing,

    3. Describe the necessity for allocating indirect product costs,

    4. Analyze the role of cost pools and cost drivers in overhead application

    5. Compute a predetermined overhead rate,

    6. Apply overhead to work in process (WIP),

    7. Evaluate the advantages and disadvantages of using plantwide versus departmental overhead rates,

    8. Calculate the cost of a product using job costing,

    9. Compute the amount of over or under applied overhead,

    10. Dispose of over or under applied overhead,

    11. Describe the use of equivalent units in process costing,

    12. Calculate the equivalent units of production using the first-in-first-out (FIFO) method, and

    13. Calculate the cost of ending WIP and the cost of goods manufactured using process costing. Chapter 4Activity-Based Costing

    Students should be able to:

    1. Describe the need for activity-based costing (ABC),

    2. Describe ABC,

    3. Describe the process of instituting ABC,

    4. Compute the cost of a unit of product using ABC,

    5. Compare traditional volume-based costing to ABC costing, and

    6. Evaluate the benefits and limitations of ABC systems

    Chapter 5Cost Behavior and Relevant Costs

    Students should be able to:

    1. Describe and identify variable costs, fixed costs, mixed costs,

    2. Describe the relationship between activity level and per unit and total fixed and variable costs,

    3. Interpret the results of a regression analysis of a mixed cost,

    4. Analyze a mixed cost using high-low analysis,

    5. Apply a cost equation to the process of prediction, and

    6. Determine the impact of taxes on costs, revenue and income.

     5

Chapter 6 Cost-Volume-Profit Analysis and Variable Costing

    Students should be able to:

    1. Construct a contribution margin income statement and compare it to a traditional income

    statement,

    2. Describe the relationship between activity level and contribution margin, fixed costs, and net

    income,

    3. Describe and compute contribution margin per unit, contribution margin ratio, and operating

    leverage,

    4. Use contribution margin and operating leverage in "what-if" analysis,

    5. Calculate the breakeven point in both units and dollars,

    6. Compute the breakeven point in a multiple product environment,

    7. Compute the number of units and sales dollars to reach a target profit (both before and after-tax),

    8. Describe the assumptions of cost-volume-profit analysis,

    Chapter 7Short-Term Tactical Decision Making

    Students should be able to:

    1. Consider both quantitative and qualitative factors in:

    ; Analyzing the pricing of a special order,

    ; Analyzing a decision involving the outsourcing of labor or making or buying a component,

    ; Analyzing a decision dealing with dropping a product,

    ; Analyzing a decision dealing with limited resources, and

    ; Analyzing a decision dealing with selling a product at the split-off point or processing it

    further.

    Chapter 8 -- Long-Term (Capital Investment) Decisions

    Students should be able to:

    1. Discuss the importance of focusing on cash flows in capital investment decisions,

    2. Understand the typical cash inflows and outflows associated with an investment project and how

    they affect capital investment decisions,

    3. Evaluate capital investment decisions using net present value (NPV) and internal rate of return

    (IRR),

    4. Discuss the key assumptions of the NPV and IRR methods,

    5. Compute the profitability index and rank investment projects using IRR and the profitability

    index,

    6. Compute the payback period of an investment and understand the limitations of the method,

    7. Compute the after-tax cost and benefits of cash expenses and receipts, and

    8. Compute the after-tax NPV and IRR of an investment.

     6

Chapter 9 -- The Use of Budgets in Planning and Decision Making

    Students should be able to:

    1. Evaluate the principal advantages of budgeting,

    2. Explain how budgets can influence behavior,

    3. Prepare a sales budget,

    4. Prepare a production budget,

    5. Prepare a direct materials budget,

    6. Prepare a cash budget, and

    7. Prepare a flexible budget and understand the advantages of a flexible budget over a static budget.

    Chapter 10 Variance Analysis: A Tool for Cost Control and Performance Evaluation

    Students should be able to:

    1. Apply and use standard costing in variance analysis,

    2. Distinguish between ideal standards and practical standards,

    3. Compute and interpret direct material price and quantity variances,

    4. Compute and interpret direct labor rate and efficiency variances,

    5. Compute and interpret variable overhead spending and efficiency variances,

    6. Explain how a manager would determine whether a variance constituted an "exception" that

    would require his/her attention, and

    Chapter 11 Decentralization and Performance Evaluation

    Students should be able to:

    1. Evaluate the benefits and drawbacks of decentralization,

    2. Explain the importance of decentralization in a responsibility accounting system,

    3. Differentiate between cost centers, revenue centers, profit centers and investment centers and

    explain how performance could be measured in each,

    4. Compute ROI for an investment center,

    5. Break down ROI into its components of margin and turnover,

    6. Compute residual income for an investment center, and

    7. Identify and discuss the advantages and disadvantages of ROI vs. residual income.

     7

    COMPARISON OF FORMS OF BUSINESS OWNERSHIP

    TYPE GEN’L INFORMATION ADVANTAGES DISADVANTAGES TAXES

    Sole ; Owned by a single owner ; All earnings go to the sole prop. ; Sole prop. Incurs all losses ; Business pays taxes at the sole Proprietorship proprietor level (Schedule C on ; Approx. 70% of all ; Easy organization ; Unlimited liability

    Form 1040) business are this, but ; Complete control ; Limited funds

    generates only 10% of the ; Lower taxes ; Limited skills revenue

    Partnership ; Co-owned by two or more ; Additional funding ; Control is shared ; Business files its own tax return

    people (form 1065) in order to report ; Losses are shared ; Unlimited liability (or for general

    income, but no taxes paid with this ; General Partnership: all partner if a LP) ; More specialization

    return. Each partner is given a form owners have unlimited ; Profits are shared

    reporting their share of the liability

    business’ profits ; Limited Partnership:

    ; Each partner reports his/her share Some owners have ltd

    on their own personal tax return and liability

    pays taxes accordingly ; Limited partners usually

    do not work in the

    business

    S-Corporation ; Has characteristics of ; Owners have limited liability ; Control is shared ; Business files its own tax return

    both a partnership and a (form 1120S) in order to report ; Owners are taxed as if it were a ; Profits are shared

    corporation income, but no taxes paid with this partnership ; Strict eligibility requirements

    return. Each shareholder is given a ; Many rules in order to

    form reporting their share of the qualify

    business’ profits ; 75 or fewer shareholders

    ; Each shareholder reports his/her

    share on their own personal tax

    return and pays taxes accordingly

    Limited ; Owned by 1 or more ; Owners have limited liability ; Control is shared ; Members can choose. Usually Liability members taxed as a sole proprietorship if one ; More flexible than an S-Corp. ; Profits are shared

    Company member, and as a partnership if 2+ ; Offers limited liability ; Uncertainty as to the tax (LLC) members. ; Flexibility with respect to consequences in some states due to

    tax “newness” of this type of form

    C-Corporation ; Approx. 20% of all ; Limited liability ; High organizational expense ; Business files its own tax return

    businesses are this type (Form 1120) and pays taxes on its ; Access to funds ; Financial disclosure if a public

    income. ; Accounts for almost 90% company ; Transfer of ownership

    of all business revenue ; If remaining profits are distributed ; SEC requirements for public

    as a dividend to shareholders, then ; Privately-held vs. companies

    the shareholder pays taxes on the publicly-held ; Agency problems

    dividend on their indiv. tax return ; Double taxation

     8

    Transaction Analysis Steps

1. Enter beginning account balances (if applicable).

    2. Enter new transactions. Show how each transaction affects the accounting equation (A = L + OE). Be specific show which asset,

    liability, or owner’s equity account is being affected. If Retained Earnings (“RE”) is affected, detail the specific reason RE is affected

    (revenue, expense, or dividend).

    3. Once all transactions have been entered, calculate new account balances.

4. Verify that the account balances “balance” the accounting equation.

     REVENUES EXPENSES DIVIDENDS ASSETS LIABILITIES OWNER’S EQUITY

     Acct Name ?

     Beginning Bal.

     Balances

    Note: The various account balances (versus individual transactions) go on their respective financial statement. With retained earnings being the exception, each account balance will be used only once.

     9

ABC Company (a service organization) had the following transactions occur during its first month of operations:

Jan 1 --- The ABC Company is formed when the owners contribute a total of $10,000 cash.

    Jan 3 --- The company purchases machinery costing $3,000.

    Jan 4 --- The company borrows $4,000 from the bank by signing a note payable.

    Jan 10 -- The company performed services for customers and received $1,000 cash.

    Jan 11 -- The company incurred expenses of $300 paid in cash.

    Jan 20 -- The company paid its owners a dividend of $100.

    Required:

    1. Enter each of the above transactions in the following worksheet. Use + and signs to indicate whether the balance sheet account is going up or down.

    Remember to be specific regarding which account is affected. For numbers entered in the revenue, expense, or dividend columns, use their absolute value (no + or signs).

    2. At the bottom of the worksheet, compute account balances.

    3. On a separate page, prepare the first three financial statements Income Statement, Statement of Retained Earnings, and Balance Sheet.

     DIVIDENDS ASSETS LIABILITIES OWNER’S REVENUES EXPENSES

    EQUITY

Balances

     10

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