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Managerial accounting

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1. Which of the following is not a tort?
a. breach of contract
b. Negligence
c. gross negligence
d. Fraud
e. ordinary negligence

2. The Fund of Funds case illustrated that auditors could be found liable for failure to report wrong-doings discovered:
a. Only on audit engagements for a particular client.
b. on any type of engagement for a particular client.
c. Only on special fraud audits conducted under separate contract.
d. even on engagements for other clients.
e. even on engagements for consulting clients.

3. Under the 1977 Restatement of Torts, a party may recover for the auditor's ordinary negligence even when the auditor has no knowledge of the:
a. client intent to distribute the financial statements.
b. names or identities of the expected users.
c. type of transaction the information is to be used to support.
d. fact that the client's management created fictitious transactions.
e. fact that the client's management had knowledge of material
misrepresentations in the financial statements.

4. All of the following are true with respect to the plaintiff in a suit under the 1933 Securities Act except the plaintiff:
a. may be any person acquiring securities described in the registration statement, whether or not he or she is a client of the auditor.
b. must establish that his or her loss resulted in whole or in part from causes other than the false or misleading statements.
c. must base the claim on an alleged material false or misleading financial statement contained in the registration statement.
d. does not have to prove reliance on the false or misleading statement or that the loss suffered was the proximate result of the statement if purchase was made before the issuance of an income statement covering a period of at least twelve months following the effective date of the registration statement.
e. does not have to prove that the auditors were negligent or fraudulent in certifying the financial statements involved.

5. If a CPA recklessly abandons standards of due care and diligence while performing an audit, he or she may be held liable to unknown third parties for:
a. fraudulent misconduct.
b. gross misconduct.
c. ordinary negligence.
d. contributory negligence.
e. gross negligence.

6. The rights and obligations assertion applies to:
a. current liability items only.
b. revenue and expense items only.
c. both income statement and balance sheet items.
d. Assets that are not owned by the company.
e. balance sheet items only.

7. Which of the following statements about understanding internal control is not true:
a. The auditor uses the knowledge of the system of internal control to design further audit procedures to collect evidence.
b. In the presence of a strong system of internal control, the auditor may choose to collect less evidence about transactions or balances.
c. In the audit of a private company, it is necessary to express an opinion on the system of internal control over financial reporting.
d. A thorough understanding of the system of internal control assists the auditor in identifying potential types of misstatements.
e. A thorough understanding of the system of internal control assists the auditor in understanding the risk of material misstatements.

8. Which of these is not a category of substantive tests?
a. Initial procedures.
b. Tests of details of balances.
c. Tests of details of disclosures.
d. Tests of internal controls.
e. Tests of details of transactions.

9. Managerial accounting
a. is concerned with costing products.
b. is governed by generally accepted accounting principles.
c. pertains to the entity as a whole and is highly aggregated.
d. places emphasis on special-purpose information.

10. Which one of the following costs would be included in manufacturing overhead of a lawn mower manufacturer?
a. The cost of the wheels
b. The cost of the fuel lines that run from the motor to the gas tank
c. Depreciation on the testing equipment
d. The wages earned by motor assemblers

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Solution Preview

Managerial accounting

1. Which of the following is not a tort?
a. breach of contract
b. Negligence
c. gross negligence
d. Fraud
e. ordinary negligence
This is not a tort. a. breach of contract

2. The Fund of Funds case illustrated that auditors could be found liable for failure to report wrong-doings discovered:
a. Only on audit engagements for a particular client.
b. on any type of engagement for a particular client.
c. Only on special fraud audits conducted under separate contract.
d. even on engagements for other clients.
e. even on engagements for consulting clients.
d. even on engagements for other clients.

3. Under the 1977 Restatement of Torts, a party may recover for the auditor's ordinary negligence even when the auditor has no knowledge of the:
a. client's intent to distribute the financial statements.
b. names or identities of the expected users.
c. type of transaction the information is to be used to support.
d. fact that the client's management created fictitious transactions.
e. fact that the client's management had knowledge of material
misrepresentations in the financial statements.
b. names or ...

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Managerial Accounting - JIT, TQM, CI, CO

Following are three separate events affecting the managerial accounting systems for different companies.
Match the management concept(s) that the company is likely to adopt for the event identified.
There is some overlap in the meaning of customer orientation and total quality management and, therefore, some responses can include more than one concept.

Event
_______ 1. The company starts measuring inventory a. Total quality management (TQM)
turnover and discontinues elaborate
inventory records. Its new focus is b. Just-in-time (JIT) system
to pull inventory through the system.
_______ 2. The company starts reporting measures c. Continuous improvement (CI)
on customer complaints and product
returns from customers. d. Customer orientation (CO)
_______ 3. The company starts reporting measures
such as the percent of defective products
and the number of units scrapped.

a. Total quality management (TQM)
b. Just-in-time (JIT) system
c. Continuous improvement (CI)
d. Customer orientation (CO)
------------------------------------------------------------------------

The following calendar year-end information is taken from the December 31, 2005, adjusted trial balance
and other records of Plaza Company.

Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . $ 30,750
Depreciation expense?Office equipment . . . . . . . . . 9,250
Depreciation expense?Selling equipment . . . . . . . . . 10,600
Depreciation expense?Factory equipment . . . . . . . . 35,550
Factory supervision . . . . . . . . . . . . . . . . . . . . . . . . . 104,600
Factory supplies used . . . . . . . . . . . . . . . . . . . . . . . 9,350
Factory utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Inventories
Raw materials, December 31, 2004 . . . . . . . . . . . . 168,850
Raw materials, December 31, 2005 . . . . . . . . . . . . 184,000
Goods in process, December 31, 2004 . . . . . . . . . 17,700
Goods in process, December 31, 2005 . . . . . . . . . 21,380
Finished goods, December 31, 2004 . . . . . . . . . . . 169,350
Finished goods, December 31, 2005 . . . . . . . . . . . 138,490
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 677,480
Income taxes expense . . . . . . . . . . . . . . . . . . . . . . . 235,725
Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,875
Miscellaneous production costs . . . . . . . . . . . . . . . . 10,425
Office salaries expense . . . . . . . . . . . . . . . . . . . . . . 65,000
Raw materials purchases . . . . . . . . . . . . . . . . . . . . . 927,000
Rent expense?Office space . . . . . . . . . . . . . . . . . . 24,000
Rent expense?Selling space . . . . . . . . . . . . . . . . . . 28,100
Rent expense?Factory building . . . . . . . . . . . . . . . 78,800
Maintenance expense?Factory equipment . . . . . . . . 37,400
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,527,000
Sales discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,500
Sales salaries expense . . . . . . . . . . . . . . . . . . . . . . . 394,560
Check (1) Cost of goods
manufactured, $1,955,650
Problem 18-9A
Sales and costs estimation;
contribution margin analysis
C3 A1
King grocery chain, a market leader, wants to increase sales to its existing customers by creating a
customer orientation to better meet buyer needs and wants. Assume that King hires you as a consultant
to analyze its operations and suggest improvements. King's goal is to increase its contribution
margin by $40,000.
Required
1. To increase King's sales and contribution margin from existing customers, offer three improvements
that you have observed in other stores and believe would be successful here.
2. What level of increase in sales is necessary for King to increase contribution margin by $40,000?
(Hint: With each suggestion in part [1], identify the expected sales dollars and the contribution
margin ratio to meet the $40,000 increase in contribution margin.)
PROBLEM SET B
Problem 18-1B
Managerial accountant's role
C1 C3
This chapter discusses the purposes of managerial accounting and the current business environment.
You are to look through the home electronics section of your local newspaper; the Sunday paper is
often best. Review advertisements of home electronics and note how many manufacturers offer these
products and the factors on which they compete.
Required
Discuss the potential contributions and responsibilities of the managerial accounting professional in
helping a home electronics manufacturer succeed. (Hint: Think about information and estimates that
a managerial accountant might provide new entrants into the home electronics market.)

1. Prepare the company's 2005 manufacturing statement.
2. Prepare the company's 2005 income statement that reports separate categories for (a) selling
expenses and (b) general and administrative expenses.
--------------------------------------------------------------
Resources: Fundamental Accounting Principles, pp. 739 and 745

? Complete Exercise 18-5 on p. 739 and questions 1 and 2 of Problem 18-8A on p. 745.
? Post your answers as an attachment.

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