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Instructions

a.

Identify the shortcomings and errors in the above income statement.  Based on the shortcomings you have identified, explain whether you would expect the company’s actual net income for the first year of operations to be higher or lower than the amount shown.

b.

Prepare schedules to determine:

1.

The cost of direct materials used.

2.

Total manufacturing overhead.

c.

Prepare a schedule of cost of finished goods manufactured during the year.  (Use the amounts computed in part b as the costs of direct materials used and manufacturing overhead.)

d.

Prepare a corrected income statement for the year, using a multiple-step format.  Assume that income taxes expense amounts to 25% of income before income taxes.

Alternate Problems for use with Financial and Managerial Accounting, 12e16-13

© The McGraw-Hill Companies, 2002

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