Question & Answer

Omar Morena has recently completed his first year of studying accounting. His instructor for next semester has indicated that the primary focus will be the area of financial accounting. Instructions (a) Differentiate between financial accounting and managerial accounting. (b) One part of financial accounting involves the preparation of financial statements. What are the financial statements most frequently provided? (c) What is the difference between financial statements and financial reporting?

Bill Jovi is reviewing the cash accounting for Nottleman, Inc., a local mailing service. Jovi’s review will focus on the petty cash account and the bank reconciliation for the month ended May 31, 2014. He has collected the following information from Nottleman’s bookkeeper for this task. Petty Cash 1. The petty cash fund was established on May 10, 2014, in the amount of $250. 2. Expenditures from the fund by the custodian as of May 31, 2014, were evidenced by approved receipts for the following. Postage expense $33.00 Mailing labels and other supplies 65.00 I.O.U. from employees 30.00 Shipping charges (to customer) 57.45 Newspaper advertising 22.80 Miscellaneous expense 15.35 On May 31, 2014, the petty cash fund was replenished and increased to $300; currency and coin in the fund at that time totaled $26.40. Problems 399 Bank Reconciliation   Nottleman’s Cash Account Balance, May 1, 2014 $ 8,850 Deposits during May 2014 31,000 Checks written during May 2014 (31,835) Deposits in transit are determined to be $3,000, and checks outstanding at May 31 total $850. Cash on hand (besides petty cash) at May 31, 2014, is $246. Instructions (a) Prepare the journal entries to record the transactions related to the petty cash fund for May. (b) Prepare a bank reconciliation dated May 31, 2014, proceeding to a correct cash balance, and prepare the journal entries necessary to make the books correct and complete. (c) What amount of cash should be reported in the May 31, 2014, balance sheet?

What are some of the limitations and disadvantages of casting?

How would you attempt to assess whether the technology used by an industry in a developing country was ‘inappropriate’?

Information concerning Sandro Corporation’s intangible assets is as follows. 1. On January 1, 2014, Sandro signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $75,000. Of this amount, $15,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $15,000 each, beginning January 1, 2015. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 1, 2014, of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is $43,700. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Sandro’s revenue from the franchise for 2014 was $900,000. Sandro estimates the useful life of the franchise to be 10 years. (Hint: You may want to refer to Chapter 18 to determine the proper accounting treatment for the franchise fee and payments.) 2. Sandro incurred $65,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2014. Legal fees and other costs associated with registration of the patent totaled $17,600. Sandro estimates that the useful life of the patent will be 8 years. 3. A trademark was purchased from Shanghai Company for $36,000 on July 1, 2011. Expenditures for successful litigation in defense of the trademark totaling $10,200 were paid on July 1, 2014. Sandro estimates that the useful life of the trademark will be 20 years from the date of acquisition. Instructions (a) Prepare a schedule showing the intangible assets section of Sandro’s balance sheet at December 31, 2014. Show supporting computations in good form. (b) Prepare a schedule showing all expenses resulting from the transactions that would appear on Sandro’s income statement for the year ended December 31, 2014. Show supporting computations in good form.

Why do you consider that taxation authorities require an international             transfer price to be set based on an arm’s length transaction?

Describe the three hurdles a taxpayer must pass if they want to deduct a loss from their share in an S corporation. What other loss limitation rule may impact the deductibility of losses from an S corporation?

Maurice has a client that recently asked him about the odds of the IRS detecting cash transactions not reported on a tax return.  What are some of the issues that Maurice should discuss with his client?

On July 1, 2014, Torvill Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of $1,900,000. On July 1, Torvill estimated that it would take between 2 and 3 years to complete the building. On December 31, 2016, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Gumbel for 2014, 2015, and 2016. At At At 12/31/14 12/31/15 12/31/16 Contract costs incurred to date $ 300,000 $1,200,000 $2,100,000 Estimated costs to complete the contract 1,200,000 800,000 –0– Billings to Gumbel 300,000 1,100,000 1,850,000 Instructions (a) Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2014, 2015, and 2016. (Ignore income taxes.) (b) Using the completed-contract method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2014, 2015, and 2016. (Ignore income taxes.)

Holder-Webb Company began operations on January 1, 2012, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2015. The following information is available for the years 2012–2014. Net Income Computed Using Average-Cost Method FIFO Method LIFO Method 2012 $15,000 $19,000 $12,000 2013 18,000 23,000 14,000 2014 20,000 25,000 17,000 Instructions (Ignore all tax effects.) (a) Prepare the journal entry necessary to record a change from the average-cost method to the FIFO method in 2015. (b) Determine net income to be reported for 2012, 2013, and 2014, after giving effect to the change in accounting principle. (c) Assume Holder-Webb Company used the LIFO method instead of the average-cost method during the years 2012–2014. In 2015, Holder-Webb changed to the FIFO method. Prepare the journal entry necessary to record the change in principle.

A lease agreement between Mooney Leasing Company and Rode Company is described in E21-8. Instructions (Round all numbers to the nearest cent.) Refer to the data in E21-8 and do the following for the lessor. (a) Compute the amount of the lease receivable at the inception of the lease. (b) Prepare a lease amortization schedule for Mooney Leasing Company for the 5-year lease term. (c) Prepare the journal entries to reflect the signing of the lease agreement and to record the receipts and income related to this lease for the years 2014, 2015, and 2016. The lessor’s accounting period ends on December 31. Reversing entries are not used by Mooney.

Explain how ADRs enable U.S. investors to become part owners of foreign companies. (LO7)

How would the EAPCs and the LRPC be affected by an increase in the natural rate of unemployment?

Once equipment has been installed and placed in operation, subsequent expenditures relating to this equipment are frequently thought of as repairs or general maintenance and, hence, chargeable to operations in the period in which the expenditure is made. Actually, determination of whether such anexpenditure should be charged to operations or capitalized involves a much more careful analysis of the character of the expenditure. What are the factors that should be considered in making such a decision? Discuss fully.

Rolling Hills Golf Inc. was organized on July 1, 2014. Quarterly financial statements are prepared. The unadjusted trial balance and adjusted trial balance on September 30 are shown here.   Instructions (a) Journalize the adjusting entries that were made. (b) Prepare an income statement and a retained earnings statement for the 3 months ending September 30 and a classified balance sheet at September 30. (c) Identify which accounts should be closed on September 30. (d) If the note bears interest at 12%, how many months has it been outstanding?

Strategies and balanced scorecard measures for a country Brian Henshall, Foundation Emeritus Professor of Management at The University of Auckland, suggests a number of potential performance measures that could be used to monitor performance for the country of New Zealand. Henshall recommends that the measures be published monthly to gauge progress. He also argues that a discussion of potential performance measures would help citizens define what they want. Ultimately, the measures could be used to monitor the performance of elected officials. Following are some of Henshall’s suggestions.                                                    Tangible wealth: ·       gross domestic product (GDP) percentage change as a measure of growth ·       the ratio of government wealth creation to business wealth creation as a measure of government economic performance ·       GDP per person employed and per total number of people in New Zealand as efficiency measures ·       New Zealand dollar exchange rate (percentage change for last quarter or last year) as a measure of economic stability ·       number of bankrupt firms to all trading entities as a measure of business stability   Environmental intangible wealth: ·       a pollution index that measures degradation of the environment from pollution ·       a ratio of protected land relative to total government-owned land ·       a ratio of alternative energy resources relative to total energy produced Physical and social infrastructure: ·       educational expense as a percentage of GDP ·       health care expense as a percentage of GDP ·       accidents index ·       serious crimes index   Demographics: ·       changes in population growth, year to year ·       growth in education levels ·       a demographic index that monitors innovations by diversity of peoples ·       unemployment rates   Source: Information from Henshall, BD 2002, ‘Kiwi Scorecard,’ New Zealand Management, July 2002, pp. 15 ff.   Required (a)     Suppose government officials developed an objective to increase the number of college graduates because they believe increased education will lead to increased GDP. Brainstorm and identify several ideas for action plans to carry out this strategy. (b)     Pick one of your ideas from part (a) and discuss its pros and cons. (c)     Brainstorm ideas for action plans to increase the number of high school graduates. (d)     Pick one of your ideas from part (c) and discuss its pros and cons.

As noted in Example 1-2, tolls, parking meter fees, and annual licensing fees are not considered taxes.  Can you identify other fees that are similar?

Mel and Cindy Gibson’s 12-year-old daughter Rachel was abducted on her way home from school on March 15, 2024. Police reports indicated that a stranger had physically dragged Rachel into a waiting car and sped away. Everyone hoped that the kidnapper and Rachel would be located quickly. However, as of the end of the year, Rachel was still missing. The police were still pursuing several promising leads and had every reason to believe that Rachel was still alive. In 2025, Rachel was returned safely to her parents. a. Are the Gibsons allowed to claim Rachel as a dependent in 2024 even though she only lived in the Gibson’s home for two-and-one-half months? Explain and cite your authority.

Matt Schmidt Company’s ledger shows the following balances on December 31, 2014. 7% Preferred stock—$10 par value, outstanding 20,000 shares $ 200,000 Common stock—$100 par value, outstanding 30,000 shares 3,000,000 Retained earnings 630,000 Instructions Assuming that the directors decide to declare total dividends in the amount of $366,000, determine how much each class of stock should receive under each of the conditions stated below. One year’s dividends are in arrears on the preferred stock. (a) The preferred stock is cumulative and fully participating. (b) The preferred stock is noncumulative and nonparticipating. (c) The preferred stock is noncumulative and is participating in distributions in excess of a 10% dividend rate on the common stock.

The flow rate of liquid metal into the downsprue of a mold = 1 liter/sec. The cross-sectional area at the top of the sprue = 800 mm2 , and its length = 175 mm. What area should be used at the base of the sprue to avoid aspiration of the molten metal?

Moran owns a building he bought during year 0 for $150,000. He sold the building in year 6. During the time he held the building, he depreciated it by $32,000. What are the amount and character of the gain or loss Moran will recognize on the sale in each of the following alternative situations?    a. Moran received $145,000.  b. Moran received $170,000. c. Moran received $110,000.

The following items appear on Brueggen Company’s financial statements. 1. Under the caption Assets: Pension asset/liability. 2. Under the caption Liabilities: Pension asset/liability. 3. Under the caption Stockholders’ Equity: Prior service cost as a component of Accumulated Other Comprehensive Income. 4. On the income statement: Pension expense. Instructions Explain the significance of each of the items above on corporate financial statements. (Note: All items set forth above are not necessarily to be found on the statements of a single company.)

Relative to the average tax rate, the effective tax rate provides a better depiction of a taxpayer’s tax burden because it depicts the taxpayer’s total tax paid as a ratio of the sum of both taxable and nontaxable income earned.

Much of the work at the Cut-Anything Company involves cutting and forming of flat sheets of fiber-glass for the pleasure boat industry. Manual methods based on portable saws are currently used to perform the cutting operation, but production is slow and scrap rates are high. The foreman says the company should invest in a plasma arc cutting machine, but the plant manager thinks it would be too expensive. What do you think? Justify your answer by indicating the characteristics of the process that make PAC attractive or unattractive in this application.

The assets of Fonzarelli Corporation are presented below (000s omitted).   Instructions Indicate the deficiencies, if any, in the foregoing presentation of Fonzarelli Corporation’s assets.