Question & Answer

You have been assigned to examine the financial statements of Zarle Company for the year ended December 31, 2014. You discover the following situations. 1. Depreciation of $3,200 for 2014 on delivery vehicles was not recorded. 2. The physical inventory count on December 31, 2013, improperly excluded merchandise costing $19,000 that had been temporarily stored in a public warehouse. Zarle uses a periodic inventory system. 3. A collection of $5,600 on account from a customer received on December 31, 2014, was not recorded until January 2, 2015. 4. In 2014, the company sold for $3,700 fully depreciated equipment that originally cost $25,000. The company credited the proceeds from the sale to the Equipment account. 5. During November 2014, a competitor company filed a patent-infringement suit against Zarle claiming damages of $220,000. The company’s legal counsel has indicated that an unfavorable verdict is probable and a reasonable estimate of the court’s award to the competitor is $125,000. The company has not reflected or disclosed this situation in the financial statements. 6. Zarle has a portfolio of trading securities. No entry has been made to adjust to market. Information on cost and fair value is as follows. Cost Fair Value December 31, 2013 $95,000 $95,000 December 31, 2014 $84,000 $82,000 7. At December 31, 2014, an analysis of payroll information shows accrued salaries of $12,200. The Salaries and Wages Payable account had a balance of $16,000 at December 31, 2014, which was unchanged from its balance at December 31, 2013. 8. A large piece of equipment was purchased on January 3, 2014, for $40,000 and was charged to Maintenance and Repairs Expense. The equipment is estimated to have a service life of 8 years and no residual value. Zarle normally uses the straight-line depreciation method for this type of equipment. 9. A $12,000 insurance premium paid on July 1, 2013, for a policy that expires on June 30, 2016, was charged to insurance expense. 10. A trademark was acquired at the beginning of 2013 for $50,000. No amortization has been recorded since its acquisition. The maximum allowable amortization period is 10 years. Instructions Assume the trial balance has been prepared but the books have not been closed for 2014. Assuming all amounts are material, prepare journal entries showing the adjustments that are required. (Ignore income tax considerations.)

Jurassic Company owns machinery that cost $900,000 and has accumulated depreciation of $380,000.The present value of expected future net cash flows from the use of the asset are expected to be $500,000. The fair value less cost of disposal of the equipment is $400,000. Prepare the journal entry, if any, to record the impairment loss.

Is it easier to describe what a capital asset is or what it is not?Explain

In Problem 21.1, suppose the rake angle were changed to 0°. Assuming that the friction angle remains the same, determine (a) the shear plane angle, (b) the chip thickness, and (c) the shear strain for the operation.

William is a single writer (age 35) who recently decided that he needs to save more for retirement. His current year AGI before the IRA contribution deduction is $80,000 (all earned income). a. If he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution William can make for the current year? b. If he does participate in an employer-sponsored plan, what is the maximum deductible IRA contribution William can make for the current year? c. Assume the same facts as in part (b), except William’s AGI before the IRA contribution deduction is $89,000. What is the maximum deductible IRA contribution William can make for the current year?

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?

Takemoto Corporation borrowed $60,000 on November 1, 2014, by signing a $61,350, 3-month, zero-interest-bearing note. Prepare Takemoto’s November 1, 2014, entry; the December 31, 2014, annual adjusting entry; and the February 1, 2015, entry.

What is the feature that distinguishes glass from the traditional and new ceramics?

Refer to the data in IFRS9-8 for Keyser’s Fleece Inc. Prepare the journal entries for (a) the wool harvested in the first six months of 2014, and (b) the wool harvested that is sold for $10,500 in July 2014.

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.

At December 31, 2013, certain accounts included in the property, plant, and equipment section of Reagan Company’s balance sheet had the following balances. Land $230,000 Buildings 890,000 Leasehold improvements 660,000 Equipment 875,000 During 2014, the following transactions occurred. 1. Land site number 621 was acquired for $850,000. In addition, to acquire the land Reagan paid a $51,000 commission to a real estate agent. Costs of $35,000 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for $13,000. 2. A second tract of land (site number 622) with a building was acquired for $420,000. The closing statement indicated that the land value was $300,000 and the building value was $120,000. Shortly after acquisition, the building was demolished at a cost of $41,000. A new building was constructed for $330,000 plus the following costs. Excavation fees $38,000 Architectural design fees 11,000 Building permit fee 2,500 Imputed interest on funds used during construction (stock fi nancing) 8,500 The building was completed and occupied on September 30, 2014. 3. A third tract of land (site number 623) was acquired for $650,000 and was put on the market for resale. 4. During December 2014, costs of $89,000 were incurred to improve leased office space. The related lease will terminate on December 31, 2016, and is not expected to be renewed. (Hint: Leasehold improvements should be handled in the same manner as land improvements.) 5. A group of new machines was purchased under a royalty agreement that provides for payment of royalties based on units of production for the machines. The invoice price of the machines was $87,000, freight costs were $3,300, installation costs were $2,400, and royalty payments for 2014 were $17,500. Instructions (a) Prepare a detailed analysis of the changes in each of the following balance sheet accounts for 2014. Land Leasehold Improvements Buildings Equipment Disregard the related accumulated depreciation accounts. (b) List the items in the situation that were not used to determine the answer to (a) above, and indicate where, or if, these items should be included in Reagan’s financial statements.

Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment of $2,600,000, or it can make annual payments of $300,000 for 15 years, each payment due on the last day of the year. Instructions Which method of payment do you recommend, assuming an expected effective interest rate of 8% during the future period?

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

At the end of the current period, Agler Inc. had a projected benefit obligation of $400,000 and pension plan assets (at fair value) of $350,000. What are the accounts and amounts that will be reported on the company’s balance sheet as pension assets or pension liabilities?

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.

Tool life turning tests have been conducted on B1112 steel with high-speed steel tooling, and the resulting parameters of the Taylor equation are: n = 0.13 and C = 225. B1112 is the base metal and has a machinability rating = 1.00 (100%). During the tests, feed = 0.010 in/rev, and depth of cut = 0.100 in. Based on this information, and machinability data given in Table 24.1, determine the cutting speed you would recommend for the following work materials, if the tool life desired in operation is 30 min (the same feed and depth of cut are to be used): (a) C1008 low carbon steel with 150 Brinell hardness, (b) 4130 alloy steel with 190 Brinell hardness, and (c) B1113 steel with 170 Brinell hardness.

On January 1, 2014, Norma Smith and Grant Wood formed a computersales and service company in Soapsville, Arkansas, by investing $90,000 cash. The new company,Arkansas Sales and Service, has the following transactions during January. 1. Pays $6,000 in advance for 3 months’ rent of office, showroom, and repair space. 2. Purchases 40 personal computers at a cost of $1,500 each, 6 graphics computers at a cost of $2,500 each, and 25 printers at a cost of $300 each, paying cash upon delivery. 3. Sales, repair, and office employees earn $12,600 in salaries and wages during January, of which $3,000 was still payable at the end of January. 4. Sells 30 personal computers at $2,550 each, 4 graphics computers for $3,600 each, and 15 printers for $500 each; $75,000 is received in cash in January, and $23,400 is sold on a deferred payment basis. 5. Other operating expenses of $8,400 are incurred and paid for during January; $2,000 of incurred expenses are payable at January 31. Instructions (a) Using the transaction data above, prepare (1) a cash-basis income statement and (2) an accrual-basis income statement for the month of January. (b) Using the transaction data above, prepare (1) a cash-basis balance sheet and (2) an accrual-basis balance sheet as of January 31, 2014. (c) Identify the items in the cash-basis financial statements that make cash-basis accounting inconsistent with the theory underlying the elements of financial statements.

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?

Dierdorf Inc., a closely held corporation, has decided to go public. The controller, Ed Floyd, is concerned with presenting interim data when a LIFO inventory valuation is used. What problems are encountered with LIFO inventories when quarterly data are presented?

During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock. Jan. 10 Issued 80,000 shares for cash at $6 per share. Mar. 1 Issued 5,000 shares to attorneys in payment of a bill for $35,000 for services rendered in helping the company to incorporate. July 1 Issued 30,000 shares for cash at $8 per share. Sept. 1 Issued 60,000 shares for cash at $10 per share. Instructions (a) Prepare the journal entries for these transactions, assuming that the common stock has a par value of $5 per share. (b) Prepare the journal entries for these transactions, assuming that the common stock is no-par with a stated value of $3 per share.

A part to be turned in an engine lathe must have a surface finish of 1.5 µm. The part is made of a aluminum. The cutting speed is 1.5 m/s and the depth is 3.0 mm. The nose radius on the tool = 1.0 mm. Determine the feed that will achieve the specified surface finish.

In general, what causes a stock distribution to be taxable to the recipient?

On February 1, 2014, Buffalo Corporation issued 3,000 shares of its $5 par value common stock for land worth $31,000. Prepare the February 1, 2014, journal entry.

Describe the tax benefits from “bunching” itemized deductions in one year. Describe the characteristics of the taxpayers who are most likely to benefit from using bunching and explain why this is so.

Explain each of the following terms: authorized capital stock, unissued capital stock, issued capital stock, outstanding capital stock, and treasury stock.