Question & Answer

What is endogenous about endogenous growth theory?

On December 31, 2014, Firth Company borrowed $62,092 from Paris Bank, signing a 5-year, $100,000 zero-interest-rate note. The note was issued to yield 10% interest. Unfortunately, during 2016, Firth began to experience financial difficulty. As a result, at December 31, 2016, Paris Bank determined that it was probable that it would collect only $75,000 at maturity. The market rate of interest on loans of this nature is now 11%. Instructions (a) Prepare the entry (if any) to record the impairment of the loan on December 31, 2016, by Paris Bank. (b) Prepare the entry on March 31, 2017, if Paris learns that Firth will be able to repay the loan under the original terms.

The basic issue in variable and absorption costing could be said to be one of timing rather than amount. Explain.

Of what significance is inventory turnover to a retail store?

In early January 2013, Outkast Corporation applied for a trade name, incurring legal costs of $16,000. In January 2014, Outkast incurred $7,800 of legal fees in a successful defense of its trade name. Instructions (a) Compute 2013 amortization, 12/31/13 book value, 2014 amortization, and 12/31/14 book value if the company amortizes the trade name over 10 years. (b) Compute the 2014 amortization and the 12/31/14 book value, assuming that at the beginning of 2014, Outkast determines that the trade name will provide no future benefits beyond December 31, 2017. (c) Ignoring the response for part (b), compute the 2015 amortization and the 12/31/15 book value, assuming that at the beginning of 2015, based on new market research, Outkast determines that the fair value of the trade name is $15,000. Estimated total future cash flows from the trade name is $16,000 on January 3, 2015.

Discuss the basic differences between annotated and topical tax services.  How are these services used in tax research?   Answer:

Anwer owns a rental home and is involved in maintaining it and approving renters. During the year he has a net loss of $8,000 from renting the home. His other sources of income during the year are a salary of $111,000 and $34,000 of long-term capital gains. How much of Anwer’s $8,000 rental loss can he deduct currently if he has no sources of passive income?

Logan Bruno Company has just received the August 31, 2014, bank statement, which is summarized below.   The general ledger Cash account contained the following entries for the month of August. Cash Balance, August 1 10,050 Disbursements in August 34,903 Receipts during August 35,000 Deposits in transit at August 31 are $3,800, and checks outstanding at August 31 total $1,050. Cash on hand at August 31 is $310. The bookkeeper improperly entered one check in the books at $146.50 which was written for $164.50 for supplies (expense); it cleared the bank during the month of August. Instructions (a) Prepare a bank reconciliation dated August 31, 2014, proceeding to a correct balance. (b) Prepare any entries necessary to make the books correct and complete. (c) What amount of cash should be reported in the August 31 balance sheet?

Allied Trucking moves produce from farms to markets. Its managers       decided to implement a balanced scorecard around the entity’s vision          statement: 'We aim to be the industry leader in cost-effective and timely      delivery of produce’. Provide two potential performance measures for each of the four perspectives for the balanced scorecard for Allied      Trucking.

Each of the following gross profit percentages is expressed in terms of cost. 1. 20%. 3. 331/3%. 2. 25%. 4. 50%. Instructions Indicate the gross profit percentage in terms of sales for each of the above.

Management decision makingLO1, 2 The Woolworths Group has a goal of having customers put the company first across all their brands. To achieve this the Group has identified five priorities.9 1.      Building a customer and store-led culture and team. 2.      Generating sustainable sales momentum in food. 3.      Evolving the drinks business to provide even more value and convenience to customers. 4.      Empowering the portfolio businesses to pursue strategies to deliver shareholder value. 5.      Becoming a lean retailer through end-to-end process and systems excellence.   Required (a)   Given the strategic priorities, what decisions could management take to influence the structural cost drivers and executional cost drivers? (b)   What type of information would management need in making decisions you have identified in (a)?

If supply is totally inelastic, what determines the rental value of capital equipment in the short run?

Indicate the effect—Understate, Overstate, No Effect—that each of the following errors has on 2014 net income and 2015 net income. 2014 2015 (a) Equipment purchased in 2012 was expensed. (b) Wages payable were not recorded at 12/31/14. (c) Equipment purchased in 2014 was expensed. (d) 2014 ending inventory was overstated. (e) Patent amortization was not recorded in 2015.

The extrusion die for a polyethylene parison used in blow molding has a mean diameter of 18.0 mm. The size of the ring opening in the die is 2.0 mm. The mean diameter of the parison is observed to swell to a size of 21.5 mm after exiting the die orifice. If the diameter of the blow molded container is to be 150 mm, determine (a) the corresponding wall thickness of the container and (b) the wall thickness of the parison.

Bradshaw Company experienced a loss that was deemed to be both unusual in nature and infrequent in occurrence. How should Bradshaw report this item in accordance with IFRS?

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?

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

Describe the shared-appreciation mortgage. (LO2)

On January 1, 2014, Bensen Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease. 2. Equal rental payments are due on January 1 of each year, beginning in 2014. 3. The fair value of the equipment on January 1, 2014, is $150,000, and its cost is $120,000. 4. The equipment has an economic life of 8 years, with an unguaranteed residual value of $10,000. Flynn depreciates all of its equipment on a straight-line basis. 5. Bensen set the annual rental to ensure an 11% rate of return. Flynn’s incremental borrowing rate is 12%, and the implicit rate of the lessor is unknown. 6. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor. Instructions (Both the lessor and the lessee’s accounting period ends on December 31.) (a) Discuss the nature of this lease to Bensen and Flynn. (b) Calculate the amount of the annual rental payment. (c) Prepare all the necessary journal entries for Flynn for 2014. (d) Prepare all the necessary journal entries for Bensen for

What is the complicating factor that occurs in a compression test?

Ida and Clem were married for several years, but in 2018 they finalized their divorce. In the divorce decree, Ida agreed to deed their car to Clem and pay Clem $10,000 per year for twenty years (but not beyond his death). Did these transfers qualify as alimony for tax purposes? Explain.

Pleasant Co. manufactures specialty bike accessories. The company is known for product quality, and it has offered one of the best warranties in the industry on its higher-priced products—a lifetime guarantee,performing all the warranty work in its own shops. The warranty on these products is included in the sales price. Due to the recent introduction and growth in sales of some products targeted to the low-price market, Pleasant is considering partnering with another company to do the warranty work on this line of products, if customers purchase a service contract at the time of original product purchase. Pleasant has called you to advise the company on the accounting for this new warranty arrangement. Instructions If your school has a subscription to the FASB Codification, go to http://aaahq.org/asclogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses. (a) Identify the accounting literature that addresses the accounting for the type of separately priced warranty that Pleasant is considering. (b) When are warranty contracts considered separately priced? (c) What are incremental direct acquisition costs and how should they be treated?

The comparative balance sheets of Madrasah Corporation at the beginning and end of the year 2014 appear below.   Net income of $44,000 was reported, and dividends of $33,000 were paid in 2014. New equipment was purchased and none was sold. Instructions (a) Prepare a statement of cash flows for the year 2014. (b) Compute the current ratio (current assets 4 current liabilities) as of January 1, 2014, and December 31, 2014, and compute free cash flow for the year 2014. (c) In light of the analysis in (b), comment on Madrasah’s liquidity and financial flexibility.

Presented below is a list of items that could be included in the intangible assets section of the balance sheet. 1. Investment in a subsidiary company. 2. Timberland. 3. Cost of engineering activity required to advance the design of a product to the manufacturing stage. 4. Lease prepayment (6 months’ rent paid in advance). 5. Cost of equipment obtained. 6. Cost of searching for applications of new research findings. 7. Costs incurred in the formation of a corporation. 8. Operating losses incurred in the start-up of a business. 9. Training costs incurred in start-up of new operation. 10. Purchase cost of a franchise. 11. Goodwill generated internally. 12. Cost of testing in search for product alternatives. 13. Goodwill acquired in the purchase of a business. 14. Cost of developing a patent. 15. Cost of purchasing a patent from an inventor. 16. Legal costs incurred in securing a patent. 17. Unrecovered costs of a successful legal suit to protect the patent. 18. Cost of conceptual formulation of possible product alternatives. 19. Cost of purchasing a copyright. 20. Research and development costs. 21. Long-term receivables. 22. Cost of developing a trademark. 23. Cost of purchasing a trademark. Instructions (a) Indicate which items on the list above would generally be reported as intangible assets in the balance sheet. (b) Indicate how, if at all, the items not reportable as intangible assets would be reported in the financial statements.

The earning of revenue by a business enterprise is recognized for accounting purposes when the transaction is recorded. In some situations, revenue is recognized approximately as it is earned in the economic sense. In other situations, however, accountants have developed guidelines for recognizing revenue by other criteria, such as at the point of sale. Instructions (Ignore income taxes.) (a) Explain and justify why revenue is often recognized as earned at time of sale. (b) Explain in what situations it would be appropriate to recognize revenue as the productive activity takes place. (c) At what times, other than those included in (a) and (b) above, may it be appropriate to recognize revenue? Explain.