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Managerial Accounting: Longfellow accounting equation, accep

Longfellow Company experienced an accounting event that affected its financial statements as indicated below:
Which of the following transactions could have caused the indicated effects on the company's accounting equation?
Assets (250) = Liab n/a + Equity (250) Rev n/a - Exp 250 = Net Inc (250)

a. Goods transferred from work in process to finished goods.
b. Allocation of overapplied overhead to cost of goods sold.
c. Collection of account receivable.
d. Allocation of underapplied overhead to cost of goods sold.

George Company is considering the purchase of equipment that would cost $40,000 and offer annual cash inflows of $10,500 over its useful life of 5 years. Assuming a desired rate of return of 10%, is the project acceptable?

a. No, since the negative net present value indicates the investment will yield a rate of return below the desired rate of return.
b. Yes, since the positive net present value indicates the investment will earn a rate of return lower than the desired rate of return.
c. Yes, since the positive net present value indicates the investment will earn a rate of return in excess of 10%.
d. The answer cannot be determined.

3. Grange Company has the opportunity to purchase an asset that costs $45,000. The asset is expected to increase net income by $15,000 per year. Depreciation expense will be $5,000 per year. Can you please show how to calculate the payback period?

4. Wilson Company applies overhead based on direct labor cost. During 2012, Wilson Company estimated that it would incur $90,000 in manufacturing overhead costs and $60,000 of direct labor costs. In 2012, actual manufacturing overhead cost totaled $75,000 and actual direct labor costs totaled $55,000. If total manufacturing costs were $160,000, what amount of direct materials was used during the period?

5. A capital investment is expected to cost $100,000, have a useful life of 5 years, and provide annual cash inflows of $26,000. Which of the following should be used to determine whether or not the project is an acceptable investment?

a. Payback period method
b. Unadjusted rate of return method
c. Net present value method
d. All of the other answers are correct.

Solution Preview

See the attached Excel file.

Longfellow Company experienced an accounting event that affected its financial statements as indicated below:
Which of the following transactions could have caused the indicated effects on the company's accounting equation?
Assets (250) = Liab n/a + Equity (250) Rev n/a - Exp 250 = Net Inc (250)

a. Goods transferred from work in process to finished goods.
b. Allocation of overapplied overhead to cost of goods sold.
c. Collection of account receivable.
d. Allocation of underapplied overhead to cost of goods sold.

A and C would not change anything - just a re-arranging of assets without a change to the total.
Overapplied means inventories are too high; underapplied means they are too low. So, if assets (inventory) are going down, it must be overapplied. ...

Solution Summary

A sentence explains the reason for each selection.

$2.19