Question & Answer

1. Give some other examples of public goods. Does the provider of these goods (the government or local authority) charge for their use? If so, is the method of charging based on the amount of the good that people use? Is it a good method of charging? Could you suggest a better method? 2. Name some goods or services provided by the government or local authorities that are not public goods. 3. Are there ways in which we could overcome the free-rider problem? Start by thinking about the provision of a public good amongst a group of friends or neighbours.

Threshold Concept 9) 1. What risks are involved in buying the latest version of the iPhone? Compare these with the risks of buying a house. (Threshold Concept 9) 2. Give some examples of ways in which it is possible to buy better information. Your answer should suggest that there is profitable business to be made in supplying information. (Threshold Concept 9) 3. Is there a role for government intervention in the provision of information?

What are likely reasons for weak bank performance? (LO3)

Describe a wheel ring test.

Outline the purpose of strategy maps.

1. Give other examples of each of the four types of externality. 2. Redraw Figure 12.4, only this time assume there is only one producer, which is thus a monopoly. How does the existence of power affect the relationship between the private and the social optimum positions? 3. Redraw Figure 12.4, only this time assume that at low levels of production the good generates no external costs. Only once a certain outcome is reached (Qx) does the production of additional units generate rising external costs.

To what extent do you consider the following items to be proper costs of the fixed asset? Give reasons for your opinions. (a) Overhead of a business that builds its own equipment. (b) Cash discounts on purchases of equipment. (c) Interest paid during construction of a building. (d) Cost of a safety device installed on a machine. (e) Freight on equipment returned before installation, for replacement by other equipment of greater capacity. (f) Cost of moving machinery to a new location. (g) Cost of plywood partitions erected as part of the remodeling of the office. (h) Replastering of a section of the building. (i) Cost of a new motor for one of the trucks.

Jayhawk Forecasting Services analyzed several factors that could affect interest rates in the future. Most factors were expected to place downward pressure on interest rates. Jayhawk also expected that although the annual budget deficit was to be cut by 40 percent from the previous year, the deficit would still be very large. Because Jayhawk believed that the deficit’s impact would more than offset the effects of other factors, it forecast interest rates to increase by 2 percent. Comment on Jayhawk’s logic. (LO2)

For Problem 13.11, assume the material is acrylic. (a) Using Figure 13.2, determine the temperature of the polymer melt. (b) If the temperature is lowered 20°C, estimate the resulting viscosity of the polymer melt. (Hint: the y-axis of Figure 13.2 is a log scale, not linear)

Why were bank regulators concerned about credit default swaps during the credit crisis? (LO2)

What are the advantages and disadvantages of the singlestep income statement?

Rick Kleckner Corporation recorded a capital lease at $300,000 on January 1, 2014. The interest rate is 12%. Kleckner Corporation made the first lease payment of $53,920 on January 1, 2014. The lease requires eight annual payments. The equipment has a useful life of 8 years with no salvage value. Prepare Kleckner Corporation’s December 31, 2014, adjusting entries.

Maria Alvarez is investing $300,000 in a fund that earns 8% interest compounded annually. What equal amounts can Maria withdraw at the end of each of the next 20 years?

Why are trading halts sometimes imposed on particular stocks? (LO4)

Lincoln Brown has used a piece of land in their business for the past five years. The land qualifies as §1231 property. It is unclear whether Lincoln will have to recognize a gain or loss when they eventually sell the asset. Lincoln asks their accountant how the gain or loss would be characterized if they decide to sell. The accountant says that selling §1231 assets gives sellers “the best of both worlds.” Explain what the accountant means by this statement.

Compare and contrast financial accounting rules with the tax rules under UNICAP (§263A). Explain whether the UNICAP rules tend to accelerate or defer income relative to the financial accounting rules.

The UK government introduced the Soft Drinks Industry Levy in April 2018. Explain how this tax works and discuss its impact on both soft drinks companies and consumer behaviour.

If the government increases the tax on a litre of petrol by 5p, what will determine the amount by which the price of petrol will go up as a result of this tax increase?

Columbia Sportswear Company acquired a trademark that is helpful in distinguishing one of its new products. The trademark is renewable every 10 years at minimal cost. All evidence indicates that this trademarked product will generate cash flows for an indefinite period of time. How should this trademark be amortized?

What is meant by the term structural adhesive?

} Hank, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December, he performed $20,000 of legal services for a client. Hank typically requires his clients to pay his bills immediately upon receipt. Assume his marginal tax rate is 32 percent this year and will be 37 percent next year, and that he can earn an after-tax rate of return of 12 percent on his investments. Should Hank send his client the bill in December or January?

Explain how breakeven point would be affected under both absorption and variable costing.

Differentiate broadly between financial accounting andmanagerial accounting

If the government reduces the size of its public-sector net cash requirement, why might the money supply nevertheless increase more rapidly?

At what time is it proper to recognize income in the following cases: (a) Installment sales with no reasonable basis for estimating the degree of collectibility? (b) Sales for future delivery? (c) Merchandise shipped on consignment? (d) Profit on incomplete construction contracts? (e) Subscriptions to publications?