Ariel Gad ACCT 393W Professor Davidovits 09 October 2013 Chapter 5 Homework Exercise 5-1: Variable and absorption

costing will influence income. While variable costing affects income only, absorption costing influences income and production. Both variable and absorption costing affect income, but only absorption costing influences production.

Exercise 5-2: 1. Comma Splice: Glenn Manufacturing may argue that these costs do not provide future benefits; thus, Glenn may choose to expense them. 2. Incorrect: To improve our profits, we reduced our expenses. 3. Correct. 4. Fused sentence: Tax season is our busiest time of the year, so everyone works longer hours. 5. Correct. 6. Fragment: Nevertheless, the new equipment has improved our rate of production. 7. Fragment: Our profit performance is poor, because the market is saturated.

8. Comma Splice: Our new computer system is much faster than the old one; therefore, we will complete the year-end work on time. 9. Correct 10. Correct Exercise 5-3: 1. Incorrect: Changes in the general purchasing power of the dollar force accountants to deal with an unstable monetary unit. 2. Correct 3. Incorrect: One problem we found with the review of the records was that revenues were not always recorded in the proper period. 4. Incorrect: A statement with supplementary disclosures provides additional information to investors. 5. Correct 6. Each of these statements was prepared according to GAAP. 7. Neither the President nor the Controller understands the new policy. 8. Correct 9. Correct 10. Correct Exercise 5-7: 1. When the Board of Directors met in December, the company showed a net loss of $5,000,000. 2. To increase the revenues from its new product, the company introduced an advertising campaign in New York, Chicago, and Los Angeles.

3. Correct 4. The firm hired new auditors; thus, the work will be finished on time. 5. For example, Elixer Products should consider FASB statement No. 13 which deals with leases. 6. The auditors revealed several problems in Thompson Companys financial records, such as its depreciation policy, its handling of bad debts, and its inventory accounting. 7. The presidents letter contained the following warning: If our revenues dont increase soon, the plant may be forced to close. 8. Were planning a new sales strategy, the manager wrote in reply. 9. We have decided not to invest in Allied bonds at this time; instead, we are considering Blackstones common stock. 10. Although revenues increased, during June expenses rose at an alarming rate. Exercise 5-8: 1. correct 2. correct 3. occurred 4. separate 5. accrual 6. benefited 7. existence 8. correct 9. costs 10. misled

11. advice 12. correct 13. their 14. interest 15. trial balance Exercise 5-9: 1. If we upgrade our software, we will prepare reports more quickly. 2. correct 3. We have increased our advertising; thus, we hope to sell more of our product. 4. The report was signed by the controller, internal auditor, and vice president. 5. Neither Susan nor Lauren is on the committee. 6. This is the employees parking lot. 7. Correct 8. The benefits to this health care plan are obvious to the employees. 9. We will review clients system of internal control. The we will recommend ways to improve it. 10. Correct