Question & Answer

Gheorghe Moresan Lumber Company handles three principal lines of merchandise with these varying rates of gross profit on cost. Lumber 25% Millwork 30% Hardware and fi ttings 40% On August 18, a fire destroyed the office, lumber shed, and a considerable portion of the lumber stacked in the yard. To file a report of loss for insurance purposes, the company must know what the inventories were immediately preceding the fire. No detail or perpetual inventory records of any kind were maintained. The only pertinent information you are able to obtain are the following facts from the general ledger, which was kept in a fireproof vault and thus escaped destruction. Lumber Millwork Hardware Inventory, Jan. 1, 2014 $ 250,000 $ 90,000 $ 45,000 Purchases to Aug. 18, 2014 1,500,000 375,000 160,000 Sales revenue to Aug. 18, 2014 2,080,000 533,000 210,000 Instructions Submit your estimate of the inventory amounts immediately preceding the fire.

Benjamin recently bought a truck in Alabama for his business in Georgia.  What different types of federal and state taxes may affect this transaction?

Homer Winslow and Jane Alexander are discussing various aspects of the FASB’s concepts statement on the objective of financial reporting. Homer indicates that this pronouncement provides little, if any, guidance to the practicing professional in resolving accounting controversies. He believes that the statement provides such broad guidelines that it would be impossible toapply the objective to present-day reporting problems. Jane concedes this point but indicates that the objective is still needed to provide a starting point for the FASB in helping to improve financial reporting. Instructions (a) Indicate the basic objective established in the conceptual framework. (b) What do you think is the meaning of Jane’s statement that the FASB needs a starting point to resolve accounting controversies?

A centerless grinding operation uses a regulating wheel that is 150 mm in diameter and rotates at 500 rev/min. At what inclination angle should the regulating wheel be set, if it is desired to feed a workpiece with length = 3.5 m and diameter = 18 mm through the operation in exactly 30 sec?

Give two examples of positive statements about the economy, and two examples of normative ones. Now give two examples that are seemingly positive, but which have normative implications or undertones.

Leppard Corporation sells DVD players. The corporation also offers its customers a 2-year warranty contract. During 2014, Leppard sold 20,000 warranty contracts at $99 each. The corporation spent $180,000 servicing warranties during 2014, and it estimates that an additional $900,000 will be spent in the future to service the warranties. Prepare Leppard’s journal entries for (a) the sale of contracts, (b) the cost of servicing the warranties, and (c) the recognition of warranty revenue. Assume the service costs are inventory costs.

1. (a) What discount factor is used to weight benefits that occur in three months’ time for a person with a per-monthly discount factor of 0.9? (b) What does this make the present value of £20 of benefits received in three months’ time? 2. Assume that the good costs £10, which has to be paid today. How long would the maximum delay in (whole) months before receiving the £20 of benefits have to be before a person with a monthly discount of 0.9 would no longer purchase the good.

Stacy Corporation had income before income taxes for 2014 of $6,300,000. In addition, it suffered an unusual and infrequent pretax loss of $770,000 from a volcano eruption. The corporation’s tax rate is 30%. Prepare a partial income statement for Stacy beginning with income before income taxes. The corporation had 5,000,000 shares of common stock outstanding during 2014.

Presented below is the comparative balance sheet for Gilmour Company.   Instructions  (Round to two decimal places.) (a) Prepare a comparative balance sheet of Gilmour Company showing the percent each item is of the total assets or total liabilities and stockholders’ equity. (b) Prepare a comparative balance sheet of Gilmour Company showing the dollar change and the percent change for each item. (c) Of what value is the additional information provided in part (a)? (d) Of what value is the additional information provided in part (b)?

Some countries do not have well-established markets for debt securities or equity securities. Why do you think this can limit the development of the country, business expansion, and growth in national income in these countries? (LO3)

What purpose does the variety in bond features (types and characteristics) serve?

Scatter plot; cost function using regression The following scatter plot and simple regression results used revenue as a potential cost driver for research and development costs. Required (a)          Discuss whether the scatter plot suggests that revenue is a cost driver for research and development costs. (b)          Using the regression results, write the cost function for research and development costs. (c)           Based on the regression results, discuss whether it would be appropriate to use total revenue as a cost driver for research and development costs. (d)          If you use the cost function from part (b) to estimate next month’s research and development costs, what assumptions are you making? Identify at least three assumptions and discuss their reasonableness.

How are FRPs cut?

Kobestrongly dislikes SUVs and is appalled that so many are on the road.  He proposes to eliminate the federal income tax and replace it with a $50,000 annual tax per SUV.  Based on the number of SUVs currently owned in the United States, he estimates the tax will generate exactly the amount of tax revenue currently collected from the income tax.  What is wrong with Kobe’s proposal?  What type of forecasting is Kobelikely using?

Cost drivers; value chain; strategy; organisational structure Australian fashion designer Sean Ashby commenced his men’s swimwear and clothing business aussieBum in 2001. A keen swimmer and surfer, he was unable to find a good pair of men’s cossies and used his life savings of $20 000 to make a series of prototypes, buy materials and commence manufacturing in Australia. Despite rejection from local retailers who did not see the potential for aussieBum to compete with international brands, Ashby has proven critics wrong. He had no choice but to take his business online, with instant exposure to the international market. It now takes thousands of orders a day.   Since the company’s inception, Ashby says that aussieBum has ‘taken on its own little cult revolution’, with celebrities such as Ewan McGregor, Billy Connolly and David Beckham fans of the aussieBum brand. Even Kylie Minogue’s male dancers wore aussieBum cossies in the film clip for her song ‘Slow’. The marketing thrust behind Ashby’s aussieBum is to live the dream — ‘the dream to be independent and present our gear in a way that gets noticed. We don’t apologise for pushing the boundaries . . . We have a saying at aussieBum — If you doubt yourself, wear something else’.   The company doubled in size every year in its first five years and continued to grow by 20 per cent every quarter. By 2005, aussieBum earned more than $5 million in sales and carried no debt. The aussieBum brand now takes pride of place in stores such as Selfridges in the UK; Brown Thomas in Ireland; La Maison Stores in Canada; Alpha Male in Melrose Drive, Los Angeles; KaDeWa in Germany; as well as others in Spain, The Netherlands, Sweden, Poland and Russia. As well as direct department store sales, aussieBum’s internet retail orders are booming, with aussieBum being distributed to more than 70 countries. It now has over 200 000 consumers ordering direct via its custom built e-commerce site.   Most of the raw materials are sourced from Italy and China. By manufacturing in Australia, aussieBum hopes to promote Australia’s culture and relaxed lifestyle as well as eliminate restrictions that might come with outsourcing production to other countries. Moreover, producing locally (through independent manufacturers) provides flexibility and a reduced timeframe in getting new products to market. With a heavy emphasis on innovative product design, aussieBum pays close attention to the design phase of the product process.   Two recent examples of aussieBum’s flexibility and innovative approach to product development and marketing are worthy of note. First, it was able to capitalise on the consumer backlash against competitor Bonds when that company transferred more of its manufacturing offshore. Ashby estimates that aussieBum’s sales grew by at least 40 per cent as a result. Second, aussieBum was able to achieve continued growth during the global financial crisis. The company continues to avoid debt and own all its assets outright.       Required (a) With reference to the information provided, distinguish between structural and executional cost drivers. (b) Illustrate and describe the industry and organisational value chain in which aussieBum operates. (c) Classify aussieBum’s likely strategy as low cost or product differentiation. Explain. (d) Classify aussieBum’s organisational structure as centralised or decentralised. Explain. (e) With reference to disruptive innovation, do you consider aussieBum to be a disruptor to the traditional garment industry value chain? Discuss why or why not.

As part of the year-end accounting process for your company, you are preparing the statement of cash flows according to GAAP. One of your team, a finance major, believes the statement should be prepared to report the change in working capital, because analysts many times use working capital in ratio analysis. Your supervisor would like research conducted to verify the basis for preparing the statement of cash flows. Instructions If your school has a subscription to the FASB Codification, go to http://aaahq.org/ascLogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses. (a) What is the primary objective for the statement of cash flows? Is working capital the basis for meeting this objective? (b) What information is provided in a statement of cash flows? (c) List some of the typical cash inflows and outflows from operations.

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.

Francine’s mother Donna and her father Darren separated and divorced in September of this year. Francine lived with both parents until the separation. Francine does not provide more than half of her own support. Francine is 15 years old at the end of the year.  a. Is Francine a qualifying child to Donna?

For Warren Corporation, year-end plan assets were $2,000,000. At the beginning of the year, plan assets were $1,780,000. During the year, contributions to the pension fund were $120,000, and benefits paid were $200,000. Compute Warren’s actual return on plan assets.

The accounts below appear in the ledger of Anita Baker Company. Retained Earnings Dr. Cr. Bal. Jan. 1, 2014 Credit Balance $ 42,000 Aug. 15 Dividends (cash) $15,000 27,000 Dec. 31 Net Income for 2014 $40,000 67,000 Equipment Dr. Cr. Bal. Jan. 1, 2014 Debit Balance $140,000 Aug. 3 Purchase of Equipment $62,000 202,000 Sept. 10 Cost of Equipment Constructed 48,000 250,000 Nov. 15 Equipment Sold $56,000 194,000 Accumulated Depreciation— Equipment Dr. Cr. Bal. Jan. 1, 2014 Credit Balance $ 84,000 Apr. 8 Extraordinary Repairs $21,000 63,000 Nov. 15 Accum. Depreciation on Equipment Sold 25,200 37,800 Dec. 31 Depreciation for 2014 $16,800 54,600 Instructions From the postings in the accounts above, indicate how the information is reported on a statement of cash flows by preparing a partial statement of cash flows using the indirect method. The loss on sale of equipment (November 15) was $5,800.

Developing a reward system and reward targets You are a remuneration consultant. The board of a large multi-national bank has asked you to draft a proposal for a new reward system for senior executives. Currently all senior executives are paid a fixed salary. Your investigations at the entity reveal its mission is to be ‘the number one provider of quality banking services in the southern hemisphere’. You note that the entity has planned for 10 per cent profit growth over the next five years with a corresponding growth in share price. The entity has identified customer satisfaction, product quality and product innovation as the key indicators of success.   The directors are concerned as company profits have been declining. They consider a revised remuneration scheme may motivate senior executives to grow profits and the share price.   Required Prepare a report to the board outlining a new remuneration plan for the executives of the entity.             (LO2, 3 and 4)

Many financial institutions borrow heavily in the money markets using mortgages and mortgage-backed securities as collateral. Write a short essay about the lessons of the credit crisis to the deficit units and the surplus units that participate in the money markets. Should money markets be regulated to a greater degree to ensure proper collateral in money markets?

How do changing tax rates affect the timing strategy? What information do you need to determine the appropriate timing strategy when tax rates change?

Indicate whether the following statements about the conceptual framework are true or false. If false, provide a brief explanation supporting your position. (a) The fundamental qualitative characteristics that make accounting information useful are relevance and verifiability. (b) Relevant information only has predictive value, confirmatory value, or both. (c) Information that is a faithful representation is characterized as having predictive or confirmatory value. (d) Comparability pertains only to the reporting of information in a similar manner for different companies. (e) Verifiability is solely an enhancing characteristic for faithful representation. (f) In preparing financial reports, it is assumed that users of the reports have reasonable knowledge of business and economic activities.

Hyundai is considering opening a plant in two neighboring states. One state has a corporate tax rate of 10 percent. If operated in this state, the plant is expected to generate $1,000,000 pretax profit. The other state has a corporate tax rate of 2 percent. If operated in this state, the plant is expected to generate $930,000 of pretax profit. Which state should Hyundai choose? Why do you think the plant in the state with a lower tax rate would produce a lower before-tax income?