End of Chapter 1 Exercises - Toralde, Ma - Kristine E.

Toralde, Ma.Kristine E.
CBET-01-601A
1. What is the controller’s primary responsibility?

Controller's primary responsibility is to make sure that the accounting
information is properly made depending on the user accounting statement. Controller
focuses on the accounting and budgeting aspects of the corporation, which means that
he is responsible for the financial records, interpretation of the financial data especially
to relevant shareholders and of course the preparation of financial statements with
accordance to the standards and principle depending on the users which are those
within the organization and outside the organization.
2. Finance and Accounting Personnel. Determine whether the chief financial officer,
controller, treasurer, internal auditor, managerial accountant, financial accountant, or
tax accountant would perform the following tasks. (Hint: Some job titles may be used
more than once, and others may not be used at all.)
a. Prepares annual reports for shareholders and creditors – Managerial Accountant
b. Provides a quarterly summary of financial results to the CEO and board of directors –
Financial Accountant
c. Provides profit and loss reports by product line – Managerial Accountant
d. Calculates estimated quarterly tax payments – Tax accountant
e. Oversees the treasurer and internal auditor – Chief financial officer
f. Obtains sources of financing and manages short-term investments - Treasurer
g. Verifies that annual report financial information is accurate – Internal Auditor
3. Schedule of Raw Materials Placed in Production. The balance in Sedona
Company’s raw materials inventory account was $110,000 at the beginning of
September and $135,000 at the end of September. Raw materials purchased during the
month totaled $50,000. Sedona used $8,000 in indirect materials for the month.
Required:
Prepare a schedule of raw materials placed in production for the month of September.
Sedona Company
Schedule of Raw Materials placed in Production
Month ended September 30
Raw materials inventory, beginning balance P 110,000

Add: current period raw materials purchased 50,000
Raw materials available for production 160,000
Less: Raw materials inventory, ending balance 135,000
Raw materials placed in production 25,000
Less: Indirect materials included in manufacturing overhead 8,000
Direct materials placed in production P 17,000
4. Schedule of Cost of Goods Manufactured. The balance in the work-in-process

inventory account of Verdi Production, Inc., was $900,000 at the beginning of May and
$750,000 at the end of May. Manufacturing costs for the month follow.
Direct materials (from the schedule of raw materials $340,000

placed in production)
Direct labor $810,000
Manufacturing overhead $660,000
Required:
Prepare a schedule of cost of goods manufactured for the month of May.
Reid Company
Schedule of Cost of Goods Manufactured
Month Ended May 31
WIP inventory, beginning balance P 900,000

Add: current period manufacturing costs:
Direct Materials P 340,000
Direct Labor 810,000
Manufacturing Overhead 660,000
Total current period manufacturing costs 1,810,000
Total cost of work in process P 2,710,000
Less: WIP inventory, ending balance 750,000
Cost of Goods Manufactured P1,960,000
5. Income Statement and Supporting Schedules. The following financial

information is for Industrial Company. (Note that the most current financial
information is presented in the first column.)
December 31, 2011 December 31, 2010
Raw materials inventory $ 24,000 $ 30,000
Work-in-process inventory 1,800,000 1,650,000
Finished goods inventory 1,050,000 1,230,000
Of the total raw materials placed in production for the year, $36,000 was for indirect
materials. Industrial had $3,795,000 in sales for the year ended December 31, 2011. The
company also had the following costs for the year:
Selling $ 270,000
General and administrative $ 720,000
Raw materials purchases $ 300,000
Direct labor used in production $ 375,000
Manufacturing overhead $1,890,000
Required:
a. Prepare a schedule of raw materials placed in production for the year ended
December 31, 2011.
b. Prepare a schedule of cost of goods manufactured for the year ended December 31,
2011.
c. Prepare a schedule of cost of goods sold for the year ended December 31, 2011.
d. Prepare an income statement for the year ended December 31, 2011.
e. Describe the three types of costs included in cost of goods sold on the income
statement. (Dollar amounts are not necessary in your descriptions.)
a)
Industrial Company
Schedule of Raw Materials Placed in Production
For the Year Ended December 31, 2011
Raw materials inventory, beginning balance P 30,000

Add: current period raw materials purchased 300,000
Raw materials available for production 330,000
Less: Raw materials inventory, ending balance 24,000
Raw materials placed in production 306,000
Less: Indirect materials included in manufacturing overhead 36,000
Direct materials placed in production P 270,000
b)
Industrial Company
Schedule of Cost of Goods Manufactured
WIP inventory, beginning balance P 1,650,000

Add: current period manufacturing costs:
Direct Materials P 270,000
Direct Labor 375,000
Manufacturing Overhead 1,890,000
Total current period manufacturing costs 2,535,000
Total cost of work in process P 4,185,000
Less: WIP inventory, ending balance 1,800,000
Cost of Goods Manufactured P2,385,000
c)
Industrial Company
Schedule of Cost of Goods Sold
Finished goods inventory, beginning balance P 1,230,000

Add: Cost of Goods Manufactured 2,385,000
Cost of Goods Available for sale P 3,615,000
Less: Finished goods inventory, ending balance 1,050,000
Cost of Goods Sold P2,565,000
d)
Industrial Company
Income Statement
Sales P 3,795,000
Cost of Goods Sold 2,565,000
Gross Profit 1,230,000
Less: Operating Expenses:
Selling 270,000
General and administrative 720,000
Operating Profit P 240,000
e) The three types of cost included in cost goods sold are direct materials,
direct labor, and manufacturing overhead. Starting with direct materials also called the
raw materials are those materials that are a significant part of the finished goods meaning
you will see him immediately in the finished goods because these are the main materials in
making the finished product. While direct labor are the employees who directly work with
converting the raw materials into finished goods like they are the ones who assemble the
parts of the chair like direct materials they also have a significant part in assembling the
finished goods. Lastly, manufacturing overhead are the costs used in the factory that are
not easy to trace in the finished goods because only small amounts are used. Usually
subdivided into categories namely indirect materials, indirect labor and other
manufacturing overhead.
6. Ethics: Accounting for Obsolete Inventory. High Tech, Inc., is a public company
that produces laser and ink jet printers. Jorge is an accounting staff member who works
for the company’s controller and is involved in preparing the annual report. One of High
Tech’s competitors developed a superior color laser jet printer using a less costly
production process. Jorge realizes that High Tech’s substantial inventory of color laser
jet printers is effectively obsolete and will have to be written down to its net realizable
value in accordance with U.S. GAAP. This means higher expenses and lower profits.
Jorge’s boss, the controller, is aware of the situation but the chief financial officer is not.
In fact, the controller told the CFO that High Tech does not have any obsolete inventory.
Both Jorge’s boss and the CFO receive bonuses tied to the company’s profits.
The outside auditors are completing the audit and are unaware of the obsolete
inventory.
Required:
How should Jorge handle this situation? Use the IMA’s Statement of Ethical
Professional Practice shown in Figure 1.2 "IMA Statement of Ethical Professional
Practice" as a guide to answering this question.
In a corporate world it is unavoidable to have unethical issues and

behavior and as a professional it must be resolved in the best possible way and
should not be ignored because it can damage the corporation and your integrity
as a professional. And in the problem, this is what Jorge experienced where Jorge
knows information that significantly affects the corporation and even the
controller and CFO are aware but still lied to the corporation to receive a bonus.
Using the IMA's statement of ethical professional practice. IMA members should
have the principles of being honest, fair, objective, and responsible. Jorge should
be honest, fair, objective and responsible enough to let the corporation know
about the obsolete inventory because this is the primary product produced by the
corporation. IMA members is also responsible to comply with the standards of
Competence, Confidentiality, Integrity, and Credibility. IMA suggests that Jorge
should follow the corporation policies about unethical issues in case there is to be
resolved. In case there is no policies about it, Jorge should talk about it with the
immediate supervisor because they are the ones responsible for their members if
supervisor appears to be involved Jorge should go immediately to the next level
management. I think this process is familiar to us because it has already been
taught in another accounting subject. As a professional we should always mind
what we are doing and should disclose information that is significantly affecting
the corporation's performance to the immediate management to take action.

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Toralde, Ma.Kristine E.

1. What is the controller’s primary responsibility?

Raw materials inventory, beginning balance P 110,000

4. Schedule of Cost of Goods Manufactured. The balance in the work-in-process

Direct materials (from the schedule of raw materials $340,000

WIP inventory, beginning balance P 900,000

5. Income Statement and Supporting Schedules. The following financial

Raw materials inventory, beginning balance P 30,000

WIP inventory, beginning balance P 1,650,000

Finished goods inventory, beginning balance P 1,230,000

In a corporate world it is unavoidable to have unethical issues and

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