Question & Answer

Design the nominal sizes of a GO/NO-GO plug gage to inspect a 1.500 ± 0.030 in diameter hole. There is a wear allowance applied only to the GO side of the gage. The wear allowance is 2% of the entire tolerance band for the inspected feature. Determine (a) the nominal size of the GO gage including the wear allowance and (b) the nominal size of the NO-GO gage

Describe the underwriting function of a securities firm. (LO1)

Distinguish between a debt security and an equity security.

On November 24, 2014, 26 passengers on Windsor Airlines Flight No. 901 were injured upon landing when the plane skidded off the runway. Personal injury suits for damages totaling $9,000,000 were filed on January 11, 2015, against the airline by 18 injured passengers. The airline carries no insurance. Legal counsel has studied each suit and advised Windsor that it can reasonably expect to pay 60% of the damages claimed. The financial statements for the year ended December 31, 2014, were issued February 27, 2015. Instructions (a) Prepare any disclosures and journal entries required by the airline in preparation of the December 31, 2014, financial statements. (b) Ignoring the November 24, 2014, accident, what liability due to the risk of loss from lack of insurance coverage should Windsor Airlines record or disclose? During the past decade, the company has experienced at least one accident per year and incurred average damages of $3,200,000. Discuss fully.

It is often argued that international convergence of economic indicators is a desirable objective. Does this mean that countries should all seek to achieve the same rate of economic growth, monetary growth, interest rates and budget deficits as a percentage of their GDP, etc?

Pretax financial income for Lake Inc. is $300,000, and its taxable income is $100,000 for 2015. Its only temporary difference at the end of the period relates to a $70,000 difference due to excess depreciation for tax purposes. If the tax rate is 40% for all periods, compute the amount of income tax expense to report in 2015. No deferred income taxes existed at the beginning of the year.

Looking at the Maths) 1. If P was originally measured in £s, what would happen to the value of the d term if P were now measured in pence? (Looking at the Maths) 2. Draw the schedule (table) and graph for equation (2) for prices from £1 to £10. What is it in the equation that determines the slope of the supply ‘curve’? (Looking at the Maths) 3.  Explain why the P and j terms have a positive sign, whereas the a1 and a2 terms have a negative sign.

Seattle Bank just took speculative positions by borrowing Canadian dollars and converting the funds to invest in Australian dollars. Explain a possible future scenario that could adversely affect the bank’s performance. (LO2, LO3)

If the government is running a budget deficit, does this mean that national income will increase?

The overall balance of payments must always balance. If this is the case, why might a deficit on one part of the balance of payments be seen as a problem?

Cutting Edge is a monthly magazine that has been on the market for 18 months. It currently has a circulation of 1.4 million copies. Negotiations are underway to obtain a bank loan in order to update the magazine’s facilities. They are producing close to capacity and expect to grow at an average of 20% per year over the next 3 years. After reviewing the financial statements of Cutting Edge, Andy Rich, the bank loan officer, had indicated that a loan could be offered to Cutting Edge only if it could increase its current ratio and decrease its debt to equity ratio to a specified level. Jonathan Embry, the marketing manager of Cutting Edge, has devised a plan to meet these requirements. Embry indicates that an advertising campaign can be initiated to immediately increase circulation. The potential customers would be contacted after the purchase of another magazine’s mailing list. Thecampaign would include: 1. An offer to subscribe to Cutting Edge at 3/4 the normal price. 2. A special offer to all new subscribers to receive the most current world atlas whenever requested at a guaranteed price of $2. 3. An unconditional guarantee that any subscriber will receive a full refund if dissatisfied with the magazine. Although the offer of a full refund is risky, Embry claims that few people will ask for a refund after receiving half of their subscription issues. Embry notes that other magazine companies have tried this sales promotion technique and experienced great success. Their average cancellation rate was 25%. On average, each company increased its initial circulation threefold and in the long run increased circulation to twice that which existed before the promotion. In addition, 60% of the new subscribers are expected to take advantage of the atlas premium. Embry feels confident that the increased subscriptions from the advertising campaign will increase the current ratio and decrease the debt to equity ratio. You are the controller of Cutting Edge and must give your opinion of the proposed plan. Instructions (a) When should revenue from the new subscriptions be recognized? (b) How would you classify the estimated sales returns stemming from the unconditional guarantee? (c) How should the atlas premium be recorded? Is the estimated premium claims a liability? Explain. (d) Does the proposed plan achieve the goals of increasing the current ratio and decreasing the debt to equity ratio?

The management of Utrillo Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Utrillo changed its method of pricing inventory from last-in, first-out (LIFO) to averagecost in 2014. Given below is the 5-year summary of income under LIFO and a schedule of what the inventories would be if stated on the average-cost method. UTRILLO INSTRUMENT COMPANY STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED MAY 31 2010 2011 2012 2013 2014 Sales—net $13,964 $15,506 $16,673 $18,221 $18,898 Cost of goods sold Beginning inventory 1,000 1,100 1,000 1,115 1,237 Purchases 13,000 13,900 15,000 15,900 17,100 Ending inventory (1,100) (1,000) (1,115) (1,237) (1,369) Total 12,900 14,000 14,885 15,778 16,968 Gross profi t 1,064 1,506 1,788 2,443 1,930 Administrative expenses 700 763 832 907 989 Income before taxes 364 743 956 1,536 941 Income taxes (50%) 182 372 478 768 471 Net income 182 371 478 768 470 Retained earnings—beginning 1,206 1,388 1,759 2,237 3,005 Retained earnings—ending $ 1,388 $ 1,759 $ 2,237 $ 3,005 $ 3,475 Earnings per share $1.82 $3.71 $4.78 $7.68 $4.70 SCHEDULE OF INVENTORY BALANCES USING AVERAGE-COST METHOD FOR THE YEARS ENDED MAY 31 2009 2010 2011 2012 2013 2014 $1,010 $1,124 $1,101 $1,270 $1,500 $1,720 Instructions Prepare comparative statements for the 5 years, assuming that Utrillo changed its method of inventory pricing to average-cost. Indicate the effects on net income and earnings per share for the years involved. Utrillo Instruments started business in 2009. (All amounts except EPS are rounded up to the nearest dollar.)

On a particular production line in a wafer fabrication facility, the crystal yield is 60%, the crystal-toslice yield is 60%, wafer yield is 90%, multiprobe is 70%, and final test yield is 80%. (a) What isthe overall yield for the production line? (b) If wafer yield and multiprobe yield are combined into the same reporting category, what overall yield for the two operations would be expected?

DiCenta Corporation reported net income of $270,000 in 2014 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 5,000 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of $5 per share. DiCenta’s tax rate is 40%. Compute DiCenta’s 2014 diluted earnings per share.

] In 2024, OCC Corp. made a charitable donation of $400,000 to the International Rescue Committee (a qualifying charity). For the year, OCC reported taxable income of $1,500,000 before deducting any charitable contributions, before deducting its $20,000 dividends-received deduction, and before deducting its $40,000 NOL carryover from last year. Assume the donation is a qualified contribution.

1.    Why do you think the three skills are all needed to be an effective manager? Give examples of times when each one is used.

What are the principal considerations of a board of directors in making decisions involving dividend declarations? Discuss briefly.

Brockman Guitar Company is in the business of manufacturing topquality, steel-string folk guitars. In recent years, the company has experienced working capital problems resulting from the procurement of factory equipment, the unanticipated buildup of receivables and inventories, and the payoff of a balloon mortgage on a new manufacturing facility. The founder and president of the company, Barbara Brockman, has attempted to raise cash from various financial institutions, but to no avail because of the company’s poor performance in recent years. In particular, the company’s lead bank, First Financial, is especially concerned about Brockman’s inability to maintain a positive cash position. The commercial loan officer from First Financial told Barbara, “I can’t even consider your request for capital financing unless I see that your company is able to generate positive cash flows from operations.” Thinking about the banker’s comment, Barbara came up with what she believes is a good plan: With a more attractive statement of cash flows, the bank might be willing to provide long-term financing. To “window dress” cash flows, the company can sell its accounts receivables to factors and liquidate its raw materials inventories. These rather costly transactions would generate lots of cash. As the chief accountant for Brockman Guitar, it is your job to tell Barbara what you think of her plan. Instructions Answer the following questions. (a) What are the ethical issues related to Barbara Brockman’s idea? (b) What would you tell Barbara Brockman?

Why would a financial institution holding a stock consider buying a put option on that stock rather than simply selling it? (LO4)

Describe in general how the cash method of accounting differs from the accrual method of accounting.

Why are Christmas trees and fresh foods often sold cheaply on Christmas Eve? (See Box 6.5 on page 161.)

The food industry provides a great deal of information about its products. Why, despite this, does the government run various campaigns about healthy eating?

What accounting treatment is normally given to the following items in accounting for plant assets? (a) Additions. (b) Major repairs. (c) Improvements and replacements.

Adriana Co., with annual net sales of $5 million, maintains a markup of 25% based on cost. Adriana’s expenses average 15% of net sales. What is Adriana’s gross profit and net profit in dollars?

How are current liabilities related by definition to current assets? How are current liabilities related to a company’s operating cycle?