Question & Answer

The following statement was prepared by Maloney Corporation’s accountant. MALONEY CORPORATION STATEMENT OF SOURCES AND APPLICATION OF CASH FOR THE YEAR ENDED SEPTEMBER 30, 2014 Sources of cash Net income $111,000 Depreciation and depletion 70,000 Increase in long-term debt 179,000 Changes in current receivables and inventories, less current liabilities (excluding current maturities of long-term debt) 14,000 $374,000 Application of cash Cash dividends $ 60,000 Expenditure for property, plant, and equipment 214,000 Investments and other uses 20,000 Change in cash 80,000 $374,000 The following additional information relating to Maloney Corporation is available for the year ended September 30, 2014. 1. Salaries and wages expense attributable to stock option plans was $25,000 for the year. 2. Expenditures for property, plant, and equipment $250,000 Proceeds from retirements of property, plant, and equipment 36,000 Net expenditures $214,000 3. A stock dividend of 10,000 shares of Maloney Corporation common stock was distributed to common stockholders on April 1, 2014, when the per share market price was $7 and par value was $1. 4. On July 1, 2014, when its market price was $6 per share, 16,000 shares of Maloney Corporation common stock were issued in exchange for 4,000 shares of preferred stock. 5. Depreciation expense $ 65,000 Depletion expense 5,000 $ 70,000 6. Increase in long-term debt $620,000 Less: Redemption of debt 441,000 Net increase $179,000 Instructions (a) In general, what are the objectives of a statement of the type shown above for Maloney Corporation? Explain. (b) Identify the weaknesses in the form and format of Maloney Corporation’s statement of cash flows without reference to the additional information. (Assume adoption of the indirect method.) (c) For each of the six items of additional information for the statement of cash flows, indicate the preferable treatment and explain why the suggested treatment is preferable.

On July 1, 2014, Agincourt Inc. made two sales. 1. It sold land having a fair value of $700,000 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,101,460. The land is carried on Agincourt’s books at a cost of $590,000. 2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $400,000 (interest payable annually). Agincourt Inc. recently had to pay 8% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 12% interest. Instructions Record the two journal entries that should be recorded by Agincourt Inc. for the sales transactions above that took place on July 1, 2014.

For what reasons might the long-run aggregate supply curve be (a) vertical; (b) upward sloping; (c) downward sloping?

To what extent is Article 102 consistent with both these points of view?

Explain how the yield on a foreign money market security would be affected if the foreign currency denominating that security declined to a significant degree. (LO3)

Is an asset’s initial or cost basis simply its purchase price? Explain.

Latoya filed her tax return on February 10th this year.  When will the statute of limitations expire for this tax return?

What are some of the factors that managers should consider when implementing sustainability practices in their organisations?

Explain why a stimulative monetary policy might not be effective during a weak economy in which there is a credit crunch. (LO2)

Explain how credit rating agencies have changed their rating processes following criticism of their ratings during the credit crisis. (LO1)

How does money aid the specialisation and division of labour?

L. A. and Paula file as married taxpayers. In August of this year, they received a $5,200 refund of state income taxes that they paid last year. How much of the refund, if any, must L. A. and Paula include in gross income under the following independent scenarios? Assume the standard deduction last year was $27,700.

Solve previous Problem 21.10 except that the rake angle has been changed to -5° and the resulting chip thickness ratio = 0.35.

In a complete JW model, what else would cause the JW curve (a) to shift to the right: (b) to shift to the left?

Lane and Cal each own 50 percent of the profits and capital of HighYield LLC. HighYield owns a portfolio of taxable bonds and municipal bonds, and

Presented below is information related to Blowfish radios for the Hootie Company for the month of July. Units Unit Units Selling Date Transaction In Cost Total Sold Price Total July 1 Balance 100 $4.10 $ 410 6 Purchase 800 4.20 3,360 7 Sale 300 $7.00 $ 2,100 10 Sale 300 7.30 2,190 12 Purchase 400 4.50 1,800 15 Sale 200 7.40 1,480 18 Purchase 300 4.60 1,380 22 Sale 400 7.40 2,960 25 Purchase 500 4.58 2,290 30 Sale 200 7.50 1,500 Totals 2,100 $9,240 1,400 $10,230 Instructions (a) Assuming that the periodic inventory method is used, compute the inventory cost at July 31 under each of the following cost flow assumptions. (1) FIFO. (2) LIFO. (3) Weighted-average. (b) Answer the following questions. (1) Which of the methods used above will yield the lowest figure for gross profit for the income statement? Explain why. (2) Which of the methods used above will yield the lowest figure for ending inventory for the balance sheet? Explain why.

Francis Equipment Co. closes its books regularly on December 31, but at the end of 2014 it held its cash book open so that a more favorable balance sheet could be prepared for credit purposes. Cash receipts and disbursements for the first 10 days of January were recorded as December transactions. The information is given below. 1. January cash receipts recorded in the December cash book totaled $45,640, of which $28,000 represents cash sales, and $17,640 represents collections on account for which cash discounts of $360 were given. 2. January cash disbursements recorded in the December check register liquidated accounts payable of $22,450 on which discounts of $250 were taken. 3. The ledger has not been closed for 2014. 4. The amount shown as inventory was determined by physical count on December 31, 2014. The company uses the periodic method of inventory. Instructions (a) Prepare any entries you consider necessary to correct Francis’s accounts at December 31. (b) To what extent was Francis Equipment Co. able to show a more favorable balance sheet at December 31 by holding its cash book open? (Compute working capital and the current ratio.) Assume that the balance sheet that was prepared by the company showed the following amountsZOBLEMS See the book’s companion website, at www.wiley.com/college/kieso, for an additional set of exercises.XERCISES SET B Dr. Cr. Cash $39,000 Accounts receivable 42,000 Inventory 67,000 Accounts payable $45,000 Other current liabilities 14,200

Larry recently invested $20,000 (tax basis) in purchasing a limited partnership interest. His at-risk amount is also $20,000. In addition, Larry’s share of the limited partnership loss for the year is $2,000, his share of income from a different limited partnership was $1,000, and he had $3,000 of dividend income from the stock he owns. How much of Larry’s $2,000 loss from the limited partnership can he deduct in the current year?

Explain why financial markets may be less liquid if companies are not forced to provide accurate financial reports. (LO3)

From the information for a firm given in the table below, construct a table like Table 6.10.

1. The income–consumption curve in Figure 4.12 is drawn as positively sloped at low levels of income. Why? 2. Show the effect of a rise in income on the demand for X and Y where this time Y is the inferior good and X is the normal good. Is the income–consumption curve positively or negatively sloped?

How does carburizing work?

What is sticking friction in metalworking?

Last December 31, Ramon sold the 10 percent interest in the Del Sol Partnership, which he had held for two years to Garrett for $400,000. Prior to selling his interest, Ramon’s basis in Del Sol was $200,000, which included a $100,000 share of nonrecourse liabilities allocated to him. a. What is Garrett’s tax basis in his partnership interest? b. If Garrett sells his partnership interest three months after receiving it and recognizes a gain, what is the character of his gain?

Dunn Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided to locate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building and related facilities. Purchase: The company can purchase the site, construct the building, and purchase all store fi xtures. The cost would be $1,850,000. An immediate down payment of $400,000 is required, and the remaining $1,450,000 would be paid off over 5 years at $350,000 per year (including interest payments made at end of year). The property is expected to have a useful life of 12 years, and then it will be sold for $500,000. As the owner of the property, the company will have the following out-of-pocket expenses each period. Property taxes (to be paid at the end of each year) $40,000 Insurance (to be paid at the beginning of each year) 27,000 Other (primarily maintenance which occurs at the end of each year) 16,000 $83,000 Lease: First National Bank has agreed to purchase the site, construct the building, and install the appropriate fi xtures for Dunn Inc. if Dunn will lease the completed facility for 12 years. The annual costs for the lease would be $270,000. Dunn would have no responsibility related to the facility over the 12 years. The terms of the lease are that Dunn would be required to make 12 annual payments (the fi rst payment to be made at the time the store opens and then each following year). In addition, a deposit of $100,000 is required when the store is opened. This deposit will be returned at the end of the twelfth year, assuming no unusual damage to the building structure or fi xtures. Instructions Which of the two approaches should Dunn Inc. follow? (Currently, the cost of funds for Dunn Inc. is 10%.)