Question & Answer

The yield of good chips in multiprobe for a certain batch of wafers is 83%. The wafers have a diameter of 150 mm with a processable area that is 140 mm in diameter. If the defects are all assumed to be point defects, determine the density of point defects using the Bose-Einstein method of estimating yield.

Gary and Lakesha were married on December 31 last year. They are now preparing their taxes for the April 15 deadline and are unsure of their filing status.

Venezuela Co. is building a new hockey arena at a cost of $2,500,000. It received a downpayment of $500,000 from local businesses to support the project, and now needs to borrow $2,000,000 to complete the project. It therefore decides to issue $2,000,000 of 10.5%, 10-year bonds. These bonds were issued on January 1, 2013, and pay interest annually on each January 1. The bonds yield 10%. Venezuela paid $50,000 in bond issue costs related to the bond sale. Instructions (a) Prepare the journal entry to record the issuance of the bonds and the related bond issue costs incurred on January 1, 2013. (b) Prepare a bond amortization schedule up to and including January 1, 2017, using the effectiveinterest method. (c) Assume that on July 1, 2016, Venezuela Co. redeems half of the bonds at a cost of $1,065,000 plus accrued interest. Prepare the journal entry to record this redemption.

Garfield Company purchased, as a held-to-maturity investment, $80,000 of the 9%, 5-year bonds of Chester Corporation for $74,086, which provides an 11% return. Prepare Garfield’s journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used.

Assume that your publicly traded company attempts to be completely transparent about its financial condition, and provides thorough information about its debt, sales, and earnings every quarter. Explain why there still may be much uncertainty surrounding your company’s stock price. (LO3)

Jasmine transferred land she held as an investment (fair market value $140,000; basis $110,000) in exchange for 50 percent of Kandy Corporation stock (40 shares valued at $100,000) and $40,000 cash in a qualifying §351 exchange. What are the amount and character of gain Jasmine recognizes on the transfer?

Edna Millay Inc. is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Millay and the industry averages for firms of similar size are presented below. 2014 Edna Millay Industry 2012 2013 2014 Average Current ratio 2.09 2.27 2.51 2.24 Quick ratio 1.15 1.12 1.19 1.22 Inventory turnover 2.40 2.18 2.02 3.50 Net sales to stockholders’ equity 2.71 2.80 2.99 2.85 Return on common stock equity 0.14 0.15 0.17 0.11 Total liabilities to stockholders’ equity 1.41 1.37 1.44 0.95 Millay is being reviewed by several entities whose interests vary, and the company’s financial ratios are a part of the data being considered. Each of the parties listed below must recommend an action based on its evaluation of Millay’s financial position. Archibald MacLeish Bank. The bank is processing Millay’s application for a new 5-year term note. Archibald MacLeish has been Millay’s banker for several years but must reevaluate the company’s financial position for each major transaction. Robert Lowell Company. Lowell is a new supplier to Millay and must decide on the appropriate credit terms to extend to the company. Robert Penn Warren. A brokerage firm specializing in the stock of electronics firms that are sold overthe- counter, Robert Penn Warren must decide if it will include Millay in a new fund being established for sale to Robert Penn Warren’s clients. Working Capital Management Committee. This is a committee of Millay’s management personnel chaired by the chief operating officer. The committee is charged with the responsibility of periodically reviewing the company’s working capital position, comparing actual data against budgets, and recommending changes in strategy as needed. Instructions (a) Describe the analytical use of each of the six ratios presented on page 1535. (b) For each of the four entities described above, identify two financial ratios, from the ratios presented on page 1535, that would be most valuable as a basis for its decision regarding Millay. (c) Discuss what the financial ratios presented in the question reveal about Millay. Support your answer by citing specific ratio levels and trends as well as the interrelationships between these ratios.

What is the deposit method and when might it be applied?

An intangible asset with an estimated useful life of 30 years was acquired on January 1, 2004, for $540,000. On January 1, 2014, a review was made of intangible assets and their expected service lives, and it was determined that this asset had an estimated useful life of 30 more years from the date of the review. What is the amount of amortization for this intangible in 2014?

What are the three types of starting materials in rapid prototyping?

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) What are the primary lines of business of these two companies as shown in their notes to the financial statements? (b) Which company has the dominant position in beverage sales? (c) How are inventories for these two companies valued? What cost allocation method is used to report inventory? How does their accounting for inventories affect comparability between the two companies? (d) Which company changed its accounting policies, which then affected the consistency of the financial results from the previous year? What were these changes?

Loveless Corporation had the following 2014 income statement. Revenues $100,000 Expenses 60,000 $ 40,000 In 2014, Loveless had the following activity in selected accounts. Allowance for Accounts Receivable Doubtful Accounts 1/1/14 20,000 1,200 1/1/14 Revenues 100,000 1,000 Write-offs Write-offs 1,000 1,840 Bad debt expense 90,000 Collections 12/31/14 29,000 2,040 12/31/14 Prepare Loveless’s cash flows from operating activities section of the statement of cash flows using (a) the direct method and (b) the indirect method.

What type of earnings per share presentation is required in a complex capital structure?

Woolard Supplies (a sole proprietorship) has taxable income in 2024 of $240,000 before any depreciation deductions (§179, bonus, or MACRS) and placed some office furniture into service during the year. The furniture does not qualify for bonus depreciation.

1. If the firm adjusts the size of its mark-up according to changes in demand and the actions of competitors, could its actions approximate to setting price and output where MC = MR? 2. Some firms set their prices by adding a mark-up to average variable cost (the mark-up would be larger to include an element to cover fixed cost). Why might this make pricing easier for the firm? (See Box 6.7.)

What effect does this have on the injections (J) line in the simple Keynesian model?

Describe the shared-appreciation mortgage. (LO2)

Jill Vogel and Pete Dell have to do a class presentation on GAAP rules for reporting pension information. In developing the class presentation, they decided to provide the class with a series of questions related to pensions and then discuss the answers in class. Given that the class has all read the rules related to pension accounting and reporting, they felt this approach would provide a lively discussion. Here are the questions: 1. In an article in BusinessWeek prior to new rules related to pensions, it was reported that the discount rates used by the largest 200 companies for pension reporting ranged from 5% to 11%. How can such a situation exist, and does GAAP alleviate this problem? 2. An article indicated that when new GAAP rules were issued related to pensions, it caused an increase in the liability for pensions for approximately 20% of companies. Why might this situation occur? 3. A recent article noted that while “smoothing” is not necessarily an accounting virtue, pension accounting has long been recognized as an exception—an area of accounting in which at least some dampening of market swings is appropriate. This is because pension funds are managed so that  their performance is insulated from the extremes of short-term market swings. A pension expense that reflects the volatility of market swings might, for that reason, convey information of little relevance. Are these statements true? 4. Understanding the impact of the changes required in pension reporting requires detailed information about its pension plan(s) and an analysis of the relationship of many factors, particularly the: (a) Type of plan(s) and any significant amendments. (b) Plan participants. (c) Funding status. (d) Actuarial funding method and assumptions currently used. What impact does each of these items have on financial statement presentation? 5. An article noted “You also need to decide whether to amortize gains and losses using the corridor method, or to use some other systematic method. Under the corridor approach, only gains and losses in excess of 10% of the greater of the projected benefit obligation or the plan assets would have to be amortized.” What is the corridor method and what is its purpose? Instructions What answers do you believe Jill and Pete gave to each of these questions?

Identify the two recognized lease accounting methods for lessees and distinguish between them.

One of the more closely watched ratios by investors is the price/earnings (P/E) ratio. By dividing price per share by earnings per share, analysts get insight into the value the market attaches to a company’s earnings. More specifically, a high P/E ratio (in comparison to companies in the same industry) may suggest the stock is overpriced. Also, there is some evidence that companies with low P/E ratios are underpriced and tend to outperform the market. However, the ratio can be misleading. P/E ratios are sometimes misleading because the E (earnings) is subject to a number of assumptions and estimates that could result in overstated earnings and a lower P/E. Some analysts conduct “revenue analysis” to evaluate the quality of an earnings number. Revenues are less subject to management estimates and all earnings must begin with revenues. These analysts also compute the price-to-sales ratio (PSR 5 price per share 4 sales per share) to assess whether a company is performing well compared to similar companies. If a company has a price-to-sales ratio significantly higher than its competitors, investors may be betting on a stock that has yet to prove itself. [Source: Janice Revell, “Beyond P/E,” Fortune (May 28, 2001), p. 174.] Instructions (a) Identify some of the estimates or assumptions that could result in overstated earnings. (b) Compute the P/E ratio and the PSR for Tootsie Roll and Hershey for 2011. (c) Use these data to compare the quality of each company’s earnings.

For flow-through business entities with individual owners, how many times is flow-through entity income taxed, who pays the tax, and what is the tax rate?

Differentiate between a defined contribution pension plan and a defined benefit pension plan. Explain how the employer’s obligation differs between the two types of plans.

What are the general physical properties of ceramic materials?

(Looking at the Maths) Assuming that the pre-tax equations were:       QD = 120 – 10P and QS = 10 + 5P What is (a) the consumer share of the tax and (b) the producer share?

Outline the accounting procedures involved in applying the operating method by a lessor.