Question & Answer

Bryan followed in his father’s footsteps and entered the carpet business. He owns and operates I Do Carpet (IDC). Bryan prefers to install carpet only, but in order to earn additional revenue, he also cleans carpets and sells carpet cleaning supplies. Compute his taxable income for the current year considering the following items:  a) IDC contracted with a homebuilder in December of last year to install carpet in 10 new homes being built. The contract price of $80,000 includes $50,000 for materials (carpet). The remaining $30,000 is for IDC’s service of installing the carpet. The contract also stated that all money was to be paid up front. The homebuilder paid IDC in full on December 28 of last year. The contract required IDC to complete the work by January 31 of this year. Bryan purchased the necessary carpet on January 2 and began working on the first home January 4. He completed the last home on January 27 of this year.  b) IDC finalized several other contracts this year and completed the work before year-end. The work cost $130,000 in materials, and IDC elects to immediately deduct supplies. Bryan billed out $240,000 but only collected $220,000 by year-end. Of the $20,000 still owed to him, Bryan wrote off $3,000 he didn’t expect to collect as a bad debt from a customer experiencing extreme financial difficulties. c) IDC agreed to a three-year contract to clean the carpets of an office building. The contract specified that IDC would clean the carpets monthly from July 1 of this year through June 30 three years hence. IDC received payment in full of $8,640 ($240 a month for 36 months) on June 30 of this year.  d) IDC sold 100 bottles of carpet stain remover this year for $5 per bottle (it collected $500). IDC sold 40 bottles on June 1 and 60 bottles on November 2. IDC had the following carpet-cleaning supplies on hand for this year, and IDC has elected to use the LIFO method of accounting for inventory under a perpetual inventory system: Purchase Date Bottles Total Cost November last year 40 $120 February this year 35 $112 July this year 25 $85 August this year 40 $140 Totals 140 $457   e) On August 1 of this year, IDC needed more room for storage and paid $900 to rent a garage for 12 months.  f) On November 30 of this year, Bryan decided it was time to get his logo on the sides of his work van. IDC hired We Paint Anything Inc. (WPA) to do the job. It paid $500 down and agreed to pay the remaining $1,500 upon completion of the job. WPA indicated it would not be able to begin the job until January 15 of next year, but the job would only take one week to complete. Due to circumstances beyond its control, WPA was unable to complete the job until April 1 of next year, at which time IDC paid the remaining $1,500. g) In December, Bryan’s son, Aiden, helped him finish some carpeting jobs. IDC owed Aiden $600 (reasonable) compensation for his work. However, Aiden did not receive the payment until January of next year.  h) IDC also paid $1,000 for interest on a short-term bank loan relating to the period from November 1 of this year through March 31 of next year.

Draw a pair of diagrams like those in Figure 8.4. Illustrate what would happen if there were a rise in market demand and no rise in the costs of either the leader or the followers. Would there be an equal percentage increase in the output of both leader and followers?

What is the benefit of a single set of high-quality accounting standards?

Kellogg Company is the world’s leading producer of ready-to-eat cereal products. In recent years, the company has taken numerous steps aimed at improving its profitability and earnings per share. Presented below are some basic facts for Kellogg.   Instructions (a) What are some of the reasons that management purchases its own stock? (b) Explain how earnings per share might be affected by treasury stock transactions. (c) Calculate the ratio of debt to assets for 2010 and 2011, and discuss the implications of the change.

How is a prepreg different from a molding compound?

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?

Presented below is selected information for Alatorre Company. 1. Alatorre purchased a patent from Vania Co. for $1,000,000 on January 1, 2012. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2022. During 2014, Alatorre determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2014? 2. Alatorre bought a franchise from Alexander Co. on January 1, 2013, for $400,000. The carrying amount of the franchise on Alexander’s books on January 1, 2013, was $500,000. The franchise agreement had an estimated useful life of 30 years. Because Alatorre must enter a competitive bidding at the end of 2015, it is unlikely that the franchise will be retained beyond 2022. What amountshould be amortized for the year ended December 31, 2014? 3. On January 1, 2014, Alatorre incurred organization costs of $275,000. What amount of organization expense should be reported in 2014? 4. Alatorre purchased the license for distribution of a popular consumer product on January 1, 2014, for $150,000. It is expected that this product will generate cash flows for an indefinite period of time. The license has an initial term of 5 years but by paying a nominal fee, Alatorre can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2014? Instructions Answer the questions asked about each of the factual situations.

What two assumptions are central to the IASB conceptual framework?

Solve Problem 19.12 except that the operation is warm rolling and the strain-hardening exponent is 0.18. Assume the strength coefficient remains at 20,000 lb/in2 .

What is a cost object?

This year BPS billed clients for $86,700 and collected $61,000 in cash for golf lessons completed during the year. In addition, BPS collected an additional $14,500 in cash for lessons that will commence after year-end. Binu hopes to collect about half of the outstanding billings next year, but the rest will likely be written off.  Besides providing private golf lessons, BPS also contracted with the country club to staff the driving range. This year, BPS billed the country club $27,200 for the service. The club paid $17,000 of the amount but disputed the remainder. By year-end, the dispute had not been resolved, and while Binu believes BPS is entitled to the money, the remaining $10,200 has not been paid. BPS has accrued the following expenses (explained below): Advertising (in the clubhouse)$ 13,150 Pro golf teachers’ membership fees860 Supplies (golf tees, balls, etc.)4,720 Club rental6,800 Malpractice insurance2,400 Accounting fees8,820 The expenditures were all paid for this calendar year, with several exceptions. First, Binu initiated his golfer’s malpractice insurance on June 1 of this year. The $2,400 insurance bill covers the last six months of this calendar year and the first six months of next year. At year-end, Binu had only paid $600, but has assured the insurance agent the remaining $1,800 will be paid early next year. Second, the amount paid for club rental ($100 per week) represents rental charges for the last 6 weeks of the previous year, the 52 weeks in this calendar year, and the first 10 weeks of next year. Binu has also mentioned that BPS only pays for supplies that are used at the club. Although BPS could buy the supplies for half the cost elsewhere, Binu likes to “throw some business” to the golf pro shop because it is operated by his brother. Complete a draft of Parts I and II on the front page of a Schedule C for BPS.

What is meant by the term “qualitative characteristics of accounting information”?

What is the difference between engineering stress and true stress in a tensile test?

What are the considerations in imputing an appropriate interest rate?

1. Assume that there is both internal and narrow external balance. Now assume that as a result of inflation being below target, the central bank cuts interest rates. Into which of the four quadrants in Figure 25.2 will the economy move? 2. Imagine that there is an inflationary gap, but a balance of payments equilibrium. Describe what will happen if the government raises interest rates in order to close the inflationary gap. Assume first that there is a fixed exchange rate and then that there is a floating exchange rate.

A bridge built with steel girders is 500 m in length and 12 m in width. Expansion joints are provided to compensate for the change in length in the support girders as the temperature fluctuates. Each expansion joint can compensate for a maximum of 40 mm of change in length. From historical records it is estimated that the minimum and maximum temperatures in the region will be -35°C and 38°C, respectively. What is the minimum number of expansion joints required?

Distinguish between product costs and period costs as they relate to inventory

Explain how symbols, stories, heroes, slogans, and ceremonies can be used to interpret and shape corporate culture.

Explain how banks become exposed to exchange rate risk. (LO7)

Based on the definition of gross income in §61, related regulations, and judicial rulings, what are the three criteria for recognizing taxable income?

Angela Corporation issues 2,000 convertible bonds at January 1, 2013. The bonds have a 3-year life, and are issued at par with a face value of $1,000 per bond, giving total proceeds of $2,000,000. Interest is payable annually at 6%. Each bond is convertible into 250 ordinary shares (par value of $1). When the bonds are issued, the market rate of interest for similar debt without the conversion option is 8%. Instructions (a) Compute the liability and equity component of the convertible bond on January 1, 2013. (b) Prepare the journal entry to record the issuance of the convertible bond on January 1, 2013. (c) Prepare the journal entry to record the repurchase of the convertible bond for cash at January 1, 2016, its maturity date.

A 200.00 mm sine bar is used to inspect an angle on a part. The angle has a dimension of 35.0 ± 1.8°. The sine bar rolls have a diameter of 30.0 mm. A set of gage blocks is available that can form any height from 10.0000 to 199.9975 mm in increments of 0.0025 mm. Determine (a) the height of the gage block stack to inspect the minimum angle, (b) height of the gage block stack to inspect the maximum angle, and (c) smallest increment of angle that can be setup at the nominal angle size. All inspection is performed on a surface plate.

What are the five steps used to determine the proper time to recognize revenue?

Rembrandt Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years’-digits method, and (3) the double-declining-balance method. Year Straight-Line Years’-Digits Balance 1 $ 9,000 $15,000 $20,000 2 9,000 12,000 12,000 3 9,000 9,000 7,200 4 9,000 6,000 4,320 5 9,000 3,000 1,480 Total $45,000 $45,000 $45,000 Instructions Answer the following questions. (a) What is the cost of the asset being depreciated? (b) What amount, if any, was used in the depreciation calculations for the salvage value for this asset? (c) Which method will produce the highest charge to income in Year 1? (d) Which method will produce the highest charge to income in Year 4? (e) Which method will produce the highest book value for the asset at the end of Year 3? (f) If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset?

Which are likely to have the highest cross elasticity of demand: two brands of coffee, or coffee and tea?