### Accounting and Finance – Quiz Packets 17-24

In this chapter we discuss Accounting and Finance – Quiz Packets 17-24

Which of the following are relevant in Cowboy Ice Cream’s decision of whether to eliminate its Retail Division? (Select all that apply)

**Variable operating expenses**

**Sales**

General fixed operating expenses

**Cost of Goods Sold**

Which of the following describe relevant costs? (Select all that apply)

**Future oriented**

**Differ among alternatives**

Only quantitative (i.e., there are no relevant costs that are qualitative)

Sunk costs

Crowder Transport Company has four different divisions. A recent income statement for the West Division is shown below:

Revenue | $300,000 |

Salaries for drivers | (210,000) |

Fuel expenses | (30,000) |

Insurance | (42,000) |

Division-level facility costs | (24,000) |

Company-wide facility costs | (78,000) |

Net Loss | ($84,000) |

Which of the following items are relevant for the decision of whether the West Division should be eliminated?

**Salaries for drivers**

**Fuel expenses**

**Insurance**

**Division-level facility costs**

Company-wide facility costs

**Revenue**

Crowder Transport Company has four different divisions. A recent income statement for the West Division is shown below:

Revenue | $300,000 |

Salaries for drivers | (210,000) |

Fuel expenses | (30,000) |

Insurance | (42,000) |

Division-level facility costs | (24,000) |

Company-wide facility costs | (78,000) |

Net Loss | ($84,000) |

By how much will Crowder Transport Company’s net income increase or decrease if the West Division is eliminated?

(Enter an increase as a positive number or a decrease as a negative number, e.g., if profitability will decrease by $5,000, then enter “-5000”)

**6,000**

Rubio, Inc. is considering eliminating one of its segments. The segment incurs the following fixed costs. If the segment is eliminated, the building it uses will be sold.

Advertising expense | $140,000 |

Supervisory salaries | 300,000 |

Allocation of company-wide facility costs | 130,000 |

Original cost of building | 220,000 |

Book value of building | 100,000 |

Market value of building | 160,000 |

Maintenance costs on equipment | 112,000 |

Real estate taxes on building | 12,000 |

Identify the relevant costs associated with the segment. (Select all that apply)

**Advertising expense**

Book value of building

**Maintenance costs on equipment**

**Supervisory salaries**

**Allocation of company-wide facility costs**

Original cost of building

**Real estate taxes on building**

**Market value of building**

What was Cowboy Ice Cream’s sales volume variance, and was it favorable or unfavorable?

500; favorable

$32,000; favorable

$33,750; unfavorable

$1,750; unfavorable

$33,750; favorable

$32,000; unfavorable

**$4,000; favorable**

500; unfavorable

$2,250; favorable

$2,250; unfavorable

$1,750; favorable

$4,000; unfavorable

What was Cowboy Ice Cream’s flexible budget variance and was it favorable or unfavorable?

$33,750; favorable

$1,750; favorable

500; unfavorable

$32,000; unfavorable

$2,250; favorable

$1,750; unfavorable

**$2,250; unfavorable**

$32,000; favorable

500; favorable

$4,000; favorable

$4,000; unfavorable

$33,750; unfavorable

What is Cowboy Ice Cream’s expected contribution margin if their sales price is $4 per bar?

**13,150**

What is Cowboy Ice Cream’s expected net income if their sales price is $4.25 per bar?

**6,937**

What price would you recommend that Cowboy Ice Cream charge for the ice cream bars in order to maximize their profit?

**$3.75**

$4.25

$4.00

How many of the following variances are unfavorable?

Item | Budget | Actual |

Sales price | $350 | $380 |

Sales revenue | $15,000 | $12,500 |

Cost of goods sold | $10,000 | $9,000 |

Selling and administrative expenses | $3,200 | $3,500 |

Labor costs | $1,800 | $1,680 |

Production volume | 1,300 units | 1,260 units |

2

5

1

0

4

**3**

6

Favors Publishing has the following budgeted and actual amounts

Budgeted | Actual | |

Sales price / book | $90.00 | $87.00 |

Book sales | 30,000 books | 32,000 books |

Calculate Favor’s Publishing’s sales volume variance. Enter a favorable variance as positive and a negative variance as negative.

**180,000**

Favors Publishing has the following budgeted and actual amounts

Budgeted | Actual | |

Sales price / book | $90.00 | $87.00 |

Book sales | 30,000 books | 32,000 books |

Calculate Favor’s Publishing’s sales price variance. Enter a favorable variance as positive and a negative variance as negative.

**-96,000**

Favors Publishing has the following budgeted and actual amounts

Budgeted | Actual | |

Sales price / book | $90.00 | $87.00 |

Book sales | 30,000 books | 32,000 books |

Calculate Favor’s Publishing’s total sales variance. Enter a favorable variance as positive and a negative variance as negative.

**84,000**

A company has the following information

Budgeted | Actual | |

Sales volume | 50,000 units | 54,000 units |

Sales price | $4.00 / unit | $4.10 / unit |

A favorable variance of $5,400 is which variance?

Total sales variance

Sales volume variance

**Sales price variance**

How much of the $625,000 purchase price for the land and building should Cowboy Ice Cream allocate to the land?

**281,250**

After Cowboy Ice Cream remodels the building, what is the total amount in the building account?

874350 + 95000(Remodeling Expense-Capital Exp) 343750 + 95000= 438750

After purchasing and installing the freezer, what is the total amount that Cowboy Ice Cream should have in the equipment account?

**4,289**

What is the book value of the freezer at the end of year one?

**3,719.14**

On January 1, 2019, Pete Company purchases manufacturing equipment for $120,000. Installation and delivery costs totaled $8,000. Yearly maintenance costs on the equipment are expected to be $6,000. The expected useful life is 8 years with a salvage value of $12,000.

What amount should Pete Company have in its equipment account after the purchase?

**128,000**

On January 1, 2019, Pete Company purchases manufacturing equipment for $120,000. Installation and delivery costs totaled $8,000. Yearly maintenance costs on the equipment are expected to be $6,000. The expected useful life is 8 years with a salvage value of $12,000.

What amount of depreciation expense would Pete Company record in 2019?

**14,500**

On January 1, 2019, Pete Company purchases manufacturing equipment for $120,000. Installation and delivery costs totaled $8,000. Yearly maintenance costs on the equipment are expected to be $6,000. The expected useful life is 8 years with a salvage value of $12,000.

What amount of accumulated depreciation expense would Pete Company report on its December 31, 2021 balance sheet?

**35,500**

What is the book value of the equipment on December 31, 2023?

**55,500**

What amount of gain or loss would Pete Company record if it sold the equipment for $36,000 on January 1, 2025?

(Enter a gain as a positive number and a loss as a negative number.)

**-5,000**

On January 1, Cowboy Ice Cream declared a $3,000 cash dividend to be paid on January 31 to shareholders of record on January 15.

What is the effect on Cowboy Ice Cream’s financial statements on January 1? (Select all that apply)

Cash decreases by $3,000

**Retained Earnings decrease by $3,000**

**Dividends Payable increases by $3,000**

Net Income decreases by $3,000

Dividends decrease by $3,000

No effect on the financial statements

Dividends Payable decreases by $3,000

Financing cash outflow of $3,000

On January 1, Cowboy Ice Cream declared a $3,000 cash dividend to be paid on January 31 to shareholders of record on January 15.

What is the effect on Cowboy Ice Cream’s financial statements on January 31? (Select all that apply)

No effect on the financial statements

Dividends decrease by $3,000

Retained Earnings decrease by $3,000

**Financing cash outflow of $3,000**

Dividends Payable increases by $3,000

**Cash decreases by $3,000**

**Dividends Payable decreases by $3,000**

Net Income decreases by $3,000

From P8-23 in the packet, how much did Paid in Capital in Excess of Par increase from selling 6,000 shares of the $10 par common stock for $15 per share on January 5?

**30,000**

Last summer you saved a substantial portion of your earnings and began this school year with $5,000 in the bank. On August 1, you deposited the funds in an account that earns 3% interest and plan to withdraw a portion of the account balance each month that school is in session. If you withdraw $500 each month from August – December, what will your account balance be on December 31? Assume all withdrawals and deposits of interest occur on the last day of each month.

**2,550.28**

A company issued 30,000 shares of $10 par common stock for $16 per share.

By how much will the Common Stock account increase?

**300,000**

A company issued 30,000 shares of $10 par common stock for $16 per share.

By how much will the Paid in Capital in Excess of Par account increase?

**180,000**

A company had the following revenues, expenses and dividends in its first three years of operations:

Year 1 | Year 2 | Year 3 | |

Revenues | $12,000 | $20,000 | $30,000 |

Expenses | $7,500 | $14,000 | $21,500 |

Dividends | $1,000 | $2,000 | $3,000 |

What is the balance in Retained Earnings at the end of the first year?

**3,500**

A company had the following revenues, expenses and dividends in its first three years of operations:

Year 1 | Year 2 | Year 3 | |

Revenues | $12,000 | $20,000 | $30,000 |

Expenses | $7,500 | $14,000 | $21,500 |

Dividends | $1,000 | $2,000 | $3,000 |

What is the balance in Retained Earnings at the end of the third year?

**13,000**

From E16-3, if Ms. Trevino accepts the $325,000, how much will it be worth in 5 years? Assume she earns a return of 8 percent per year and makes no withdrawals over the 5-year period.

**477,532**

From E16-4, what is the maximum amount of cash the dean should be willing to pay for a copy machine?

**64,427.5**

Your parents tell you that they will give you $10,000 as a gift when you graduate in four years. Assuming you can earn a return of 10% per year, what amount of money could they give you today that would be of equivalent value?

**6,830.13**

Westbrook Corp is considering purchasing a triple-double producing machine to help with overall company production. The machine costs $175,000 and is expected to have an eight-year useful life with a salvage value of $16,000. Westbrook also expects to pay $15,000 to update the machine after 3 years of use. The machine is expected to generate $30,000 of net cash flow each year. Westbrook desires to earn a rate of return of 7%.

What is the present value of the salvage value?

**9,312.15**

What is the net present value of the freezer?

**101.67**

What is the net present value of the stand?

**28.6**

Which of the following is how the present value index is calculated?

PV of Outflows – PV of Inflows

**(PV of Inflows)/(PV of Outflows)**

(PV of Outflows)/(PV of Inflows)

PV of Inflows – PV of Outflows

What is the PV index of the freezer?

**1.02**

Which of the following are true regarding the calculation of the internal rate of return? (Select all that apply.)

The factor is calculated by dividing the present value of the purchase price by the average operating cash flows per year.

The factor is calculated by dividing the average operating cash flows per year by the present value of the purchase price

**The IRR for the freezer is close to 10%**

**The IRR for the stand is close to 10%**

The IRR for the freezer is close to 9%

The IRR for the stand is close to 9%

The freezer has a shorter payback period than the stand.

True

**False**

Which of the following is true regarding the calculation of net present value?

Net present value = present value of outflows – present value of inflows

Net present value = inflows – outflows

Net present value = outflows – inflows

**Net present value = present value of inflows – present value of outflows**

A company has two different investment opportunities, both requiring an initial payment of $150,000. The company’s desired rate of return is 10%.

Project A | Project B | |

Year 1 | $100,000 | $40,000 |

Year 2 | $100,000 | $170,000 |

What is the NPV of Project A?

**23,553.72**

A company has two different investment opportunities, both requiring an initial payment of $150,000. The company’s desired rate of return is 10%.

Project A | Project B | |

Year 1 | $100,000 | $40,000 |

Year 2 | $100,000 | $170,000 |

What is the NPV of Project B?

**26,859.5**

A company has two different investment opportunities, both requiring an initial payment of $150,000. The company’s desired rate of return is 10%.

Project A | Project B | |

Year 1 | $100,000 | $40,000 |

Year 2 | $100,000 | $170,000 |

Which project would you recommend based on NPV?

A

**B**