Question : Objective 16.6 1) Which method of accounting recognizes byproducts in the : 1217007

Objective 16.6

1) Which method of accounting recognizes byproducts in the financial statements at the time their production is completed?

A) production allocation method

B) sale method

C) production method

D) None of these answers is correct.

Answer the following questions using the information below:

Athens Company processes 15,000 gallons of direct materials to produce two products, Product X and Product Y. Product X sells for $8 per gallon and Product Y, the main product, sells for $100 per gallon. The following information is for August:

BeginningEnding

ProductionSalesInventoryInventory

Product X:4,3754,0000375

Product Y:10,0009,625125500

The manufacturing costs totaled $30,000.

2) What is the byproduct’s net revenue reduction if byproducts are recognized in the general ledger during production and their revenues are a reduction of cost?

A) $0

B) $3,000

C) $32,000

D) $35,000

3) How much is the ending inventory reduction for the byproduct if byproducts are recognized in the general ledger at the point of sale?

A) $0

B) $563

C) $1,500

D) $17,500

4) A negative consequence of recording byproducts in the accounting records when the sale occurs is that:

A) the revenue from the byproducts is usually fairly large, and the accounting records will be distorted

B) managers can time earnings by their decision when to sell byproducts

C) managers have an incentive to stockpile byproducts

D) Both B and C are correct.

5) Which statement is NOT true regarding the sales method of accounting for byproducts.

A) the method makes no journal entries until the byproduct is sold

B) this method is the preferred method because of the matching principle

C) revenues of the byproduct can be recorded in the income statement as revenue

D) revenues of the byproduct can be recorded as a reduction of cost of goods sold in the income statement

6) Byproducts are recognized in the general ledger either at the time production is completed or at the time of sale.

7) The production method for recognizing byproducts is conceptually correct in that it is consistent with the matching principle.

8) A sound reason for reporting revenue from byproducts as an income statement item at the time of sale is to lessen the chance of managers managing reported earnings.

9) A byproduct is one or more products of a joint production process that have low total sales value compared to the total sales value of the main product or joint products.

10) The Carolina Company prepares lumber for companies who manufacture furniture. The main product is finished lumber with a byproduct of wood shavings. The byproduct is sold to plywood manufacturers. For July, the manufacturing process incurred $332,000 in total costs. Eighty thousand board feet of lumber were produced and sold along with 6,800 pounds of shavings. The finished lumber sold for $6.00 per board foot and the shavings sold for $0.60 a pound. There were no beginning or ending inventories.

Required:

Prepare an income statement showing the byproduct (1) as a cost reduction during production, and (2) as a revenue item when sold.