Question & Answer

What is pocket milling?

Davenport Department Store converted from the conventional retail method to the LIFO retail method on January 1, 2014, and is now considering converting to the dollar-value LIFO inventory method. During your examination of the financial statements for the year ended December 31, 2015, management requested that you furnish a summary showing certain computations of inventory cost for the past 3 years. Here is the available information. 1. The inventory at January 1, 2013, had a retail value of $56,000 and cost of $29,800 based on the conventional retail method. 2. Transactions during 2013 were as follows. Cost Retail Purchases $311,000 $554,000 Purchase returns 5,200 10,000 Purchase discounts 6,000 Gross sales revenue (after employee discounts) 551,000 Sales returns 9,000 Employee discounts 3,000 Freight-in 17,600 Net markups 20,000 Net markdowns 12,000 3. The retail value of the December 31, 2014, inventory was $75,600, the cost ratio for 2014 under the LIFO retail method was 61%, and the regional price index was 105% of the January 1, 2014, price level. 4. The retail value of the December 31, 2015, inventory was $62,640, the cost ratio for 2015 under the LIFO retail method was 60%, and the regional price index was 108% of the January 1, 2014, price level. Instructions (a) Prepare a schedule showing the computation of the cost of inventory on hand at December 31, 2013, based on the conventional retail method. (b) Prepare a schedule showing the recomputation of the inventory to be reported on December 31, 2013, in accordance with procedures necessary to convert from the conventional retail method to the LIFO retail method beginning January 1, 2014. Assume that the retail value of the December 31, 2013, inventory was $60,000. (c) Without prejudice to your solution to part (b), assume that you computed the December 31, 2013, inventory (retail value $60,000) under the LIFO retail method at a cost of $33,300. Prepare a schedule showing the computations of the cost of the store’s 2014 and 2015 year-end inventories under the dollar-value LIFO method.

Stock splits and stock dividends may be used by a corporation to change the number of shares of its stock outstanding. (a) What is meant by a stock split effected in the form of a dividend? (b) From an accounting viewpoint, explain how the stock split effected in the form of a dividend differs from an ordinary stock dividend. (c) How should a stock dividend that has been declared but not yet issued be classified in a balance sheet? Why?

What types of losses may potentially be characterized as passive losses?

Pierre recently received a tax penalty for failing to file a tax return.  He was upset to receive the penalty, but he was comforted by the thought that he will get a tax deduction for paying the penalty.     a.  Use an available tax research service to determine if Pierre is correct.   b.  Write a memo communicating the results of your research.

In 2024, Jasmine and Thomas, a married couple, had taxable income of $150,000.  If they were to file separate tax returns, Jasmine would have reported taxable income of $140,000 and Thomas would have reported taxable income of $10,000.  What is the couple’s marriage penalty or benefit?

A silicon boule has been processed through grinding to provide a cylinder whose diameter = 285 mm and whose length = 900 mm. Next, it will be sliced into wafers 0.7 mm thick using a cut-off saw with a kerf = 0.5 mm. The wafers thus produced will be used to fabricate as many IC chips as possible for the personal computer market. Each IC has a market value to the company of $98. Each chip is square with 15 mm on a side. The processable area of each wafer is defined by a diameter = 270 mm. Estimate the value of all of the IC chips that could be produced, assuming an overall yield of 80% good product.

Assume the same information as E11-16, except that Suarez intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $20,000. Instructions (a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2014. (b) Prepare the journal entry (if any) to record depreciation expense for 2015. (c) The asset was not sold by December 31, 2015. The fair value of the equipment on that date is $5,300,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $20,000.

In January 2015, Janeway Inc. doubled the amount of its outstanding stock by selling on the market an additional 10,000 shares to finance an expansion of the business. You propose that this information be shown by a footnote on the balance sheet as of December 31, 2014. The president objects, claiming that this sale took place after December 31, 2014, and therefore should not be shown. Explain your position.

Define surface texture.

Indicate whether the following statements about the conceptual framework are true or false. If false, provide a brief explanation supporting your position. (a) Accounting rule-making that relies on a body of concepts will result in useful and consistent pronouncements. (b) General-purpose financial reports are most useful to company insiders in making strategic business decisions. (c) Accounting standards based on individual conceptual frameworks generally will result in consistent and comparable accounting reports. (d) Capital providers are the only users who benefit from general-purpose financial reporting. (e) Accounting reports should be developed so that users without knowledge of economics and business can become informed about the financial results of a company. (f) The objective of financial reporting is the foundation from which the other aspects of the framework logically result.

Madrasah Corporation issued its financial statements for the year ended December 31, 2014, on March 10, 2015. The following events took place early in 2015. (a) On January 10, 10,000 shares of $5 par value common stock were issued at $66 per share. (b) On March 1, Madrasah determined after negotiations with the Internal Revenue Service that income taxes payable for 2014 should be $1,270,000. At December 31, 2014, income taxes payable were recorded at $1,100,000. Instructions Discuss how the preceding post-balance-sheet events should be reflected in the 2014 financial statements.

What are the requirements to contribute to a health savings account? What limits are imposed on the contributions and deductions?

Dexter Company appropriately uses the assetliability method to record deferred income taxes. Dexter reports depreciation expense for certain machinery purchased this year using the modified accelerated cost recovery system (MACRS) for income tax purposes and the straight-line basis for financial reporting purposes. The tax deduction is the larger amount this year. Dexter received rent revenues in advance this year. These revenues are included in this year’s taxable income. However, for financial reporting purposes, these revenues are reported as unearned revenues, a current liability. Instructions (a) What are the principles of the asset-liability approach? (b) How would Dexter account for the temporary differences? (c) How should Dexter classify the deferred tax consequences of the temporary differences on its balance sheet?

1. Why do the prices of fresh vegetables fall when they are in season? Could an individual farmer prevent the price falling? 2. If you were the manager of a supermarket, how would you set about deciding what prices to charge for food approaching its sell-by date? 3. Demand for downloaded music has grown rapidly, yet the prices of downloads have fallen. Why?

Why don’t farmers benefit from a high income elasticity of demand for convenience foods?

Explain how robo-advisers differ from their human counterparts. (LO4)

Explain how income could fall even though the unit sales level rises.

What is work hardening?

Using an available tax service or the Internet, identify three basic tax planning ideas or tax tips suggested for year-end tax planning.  Which basic tax strategy from this chapter does each planning idea employ?

Of what significance is inventory turnover to a retail store?

Instructions Go to the book’s companion website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc. (a) Which company had the greater percentage increase in total assets from 2010 to 2011? (b) Using the Selected Financial Data section of these two companies, determine their 5-year average growth rates related to net sales and income from continuing operations. (c) Which company had more depreciation and amortization expense for 2011? Provide a rationale as to why there is a difference in these amounts between the two companies.

1.      Why do you think Nicola and Steve are on the defensive? Might the emphasis on core leadership behaviors be handled in a different way? What do you suggest?

Sprague Company has been operating for several years, and on December 31, 2014, presented the following balance sheet.   The net income for 2014 was $25,000. Assume that total assets are the same in 2013 and 2014. Instructions Compute each of the following ratios. For each of the four, indicate the manner in which it is computed and its significance as a tool in the analysis of the financial soundness of the company. (a) Current ratio. (c) Debt to assets. (b) Acid-test ratio. (d) Return on assets.

What are the general rules for how gains or losses on retirement of plant assets should be reported in income?