Question & Answer

Discuss the importance of ethical decision-making in a sustainability management accounting framework.

In general, what is the concept of earnings and profits (E&P) designed to represent?

A tensile test for a certain metal provides flow curve parameters: strain-hardening exponent is 0.3 and strength coefficient is 600 MPa. Determine (a) the flow stress at a true strain = 1.0 and (b) true strain at a flow stress = 600 MPa.

Why might the role of the accountant be referred to as one of a ‘detective’ in relation to variance analysis?

Within the scope of surface texture, how is roughness distinguished from waviness?

The following three situations involve the capitalization of interest. Situation I: On January 1, 2014, Oksana Baiul, Inc. signed a fixed-price contract to have Builder Associates construct a major plant facility at a cost of $4,000,000. It was estimated that it would take 3 years to complete the project. Also on January 1, 2014, to finance the construction cost, Oksana Baiul borrowed $4,000,000 payable in 10 annual installments of $400,000, plus interest at the rate of 10%. During 2014, Oksana Baiul made deposit and progress payments totaling $1,500,000 under the contract; the weightedaverage amount of accumulated expenditures was $800,000 for the year. The excess borrowed funds were invested in short-term securities, from which Oksana Baiul realized investment income of $250,000. Instructions What amount should Oksana Baiul report as capitalized interest at December 31, 2014? Situation II: During 2014, Midori Ito Corporation constructed and manufactured certain assets and incurred the following interest costs in connection with those activities. Interest Costs Incurred Warehouse constructed for Ito’s own use $30,000 Special-order machine for sale to unrelated customer, produced according to customer’s specifi cations 9,000 Inventories routinely manufactured, produced on a repetitive basis 8,000 All of these assets required an extended period of time for completion. Instructions Assuming the effect of interest capitalization is material, what is the total amount of interest costs to be capitalized? Situation III: Peggy Fleming, Inc. has a fiscal year ending April 30. On May 1, 2014, Peggy Fleming borrowed $10,000,000 at 11% to finance construction of its own building. Repayments of the loan are to commence the month following completion of the building. During the year ended April 30, 2015, expenditures for the partially completed structure totaled $7,000,000. These expenditures were incurred evenly throughout the year. Interest earned on the unexpended portion of the loan amounted to $650,000 for the year. Instructions How much should be shown as capitalized interest on Peggy Fleming’s financial statements at April 30, 2015?

Johnson & Johnson, the world’s leading and most diversified health-care corporation, serves its customers through specialized worldwide franchises. Each of its franchises consists of a number of companies throughout the world that focus on a particular health-care market, such as surgical sutures, consumer pharmaceuticals, or contact lenses. Information related to its property, plant, and equipment in its 2011 annual report is shown in the notes to the financial statements below.     Instructions (a) What was the cost of buildings and building equipment at the end of 2011? (b) Does Johnson & Johnson use a conservative or liberal method to depreciate its property, plant, and equipment? (c) What was the actual interest expense paid by the company in 2011? (d) What is Johnson & Johnson’s free cash flow? From the information provided, comment on Johnson & Johnson’s financial flexibility.

Assess the economic situation today. Is the current presidential administration more concerned with reducing unemployment or inflation? Does the Fed have a similar opinion? If not, is the administration publicly criticizing the Fed? Is the Fed publicly criticizing the administration? Explain. (LO2; LO3)

Dexter Company appropriately uses the assetliability method to record deferred income taxes. Dexter reports depreciation expense for certain machinery purchased this year using the modified accelerated cost recovery system (MACRS) for income tax purposes and the straight-line basis for financial reporting purposes. The tax deduction is the larger amount this year. Dexter received rent revenues in advance this year. These revenues are included in this year’s taxable income. However, for financial reporting purposes, these revenues are reported as unearned revenues, a current liability. Instructions (a) What are the principles of the asset-liability approach? (b) How would Dexter account for the temporary differences? (c) How should Dexter classify the deferred tax consequences of the temporary differences on its balance sheet?

Assume Alexa receives $30,000 in gross rental receipts. a. What effect do the expenses associated with the property have on her AGI? b. What effect do the expenses associated with the property have on her itemized deductions?

Sylvan Inc. entered into a noncancelable lease arrangement with Breton Leasing Corporation for a certain machine. Breton’s primary business is leasing; it is not a manufacturer or dealer. Sylvan will lease the machine for a period of 3 years, which is 50% of the machine’s economic life. Breton will take possession of the machine at the end of the initial 3-year lease and lease it to another, smaller company that does not need the most current version of the machine. Sylvan does not guarantee any residual value for the machine and will not purchase the machine at the end of the lease term. Sylvan’s incremental borrowing rate is 10%, and the implicit rate in the lease is 9%. Sylvan has no way of knowing the implicit rate used by Breton. Using either rate, the present value of the minimum lease payments is between 90% and 100% of the fair value of the machine at the date of the lease agreement. Sylvan has agreed to pay all executory costs directly, and no allowance for these costs is included in the lease payments. Breton is reasonably certain that Sylvan will pay all lease payments. Because Sylvan has agreed to pay all executory costs, there are no important uncertainties regarding costs to be incurred by Breton. Assume that no indirect costs are involved. Instructions (a) With respect to Sylvan (the lessee), answer the following. (1) What type of lease has been entered into? Explain the reason for your answer. (2) How should Sylvan compute the appropriate amount to be recorded for the lease or asset acquired? (3) What accounts will be created or affected by this transaction, and how will the lease or asset and other costs related to the transaction be matched with earnings? (4) What disclosures must Sylvan make regarding this leased asset? (b) With respect to Breton (the lessor), answer the following. (1) What type of leasing arrangement has been entered into? Explain the reason for your answer. (2) How should this lease be recorded by Breton, and how are the appropriate amounts determined? (3) How should Breton determine the appropriate amount of earnings to be recognized from each lease payment? (4) What disclosures must Breton make regarding this lease?

Assume Tamar uses the Tax Court method of allocating expenses to rental use of the property.

Explain the similarities and dissimilarities between depreciation, amortization, and depletion. Describe the cost recovery method used for each of the four asset types (personal property, real property, intangible property, and natural resources).

What are some of the reasons why assemblies must be sometimes disassembled?

Shin Corporation had a projected benefit obligation of $3,100,000 and plan assets of $3,300,000 at January 1, 2014. Shin also had a net actuarial loss of $465,000 in accumulated OCI at January 1, 2014. The average remaining service period of Shin’s employees is 7.5 years. Compute Shin’s minimum amortization of the actuarial loss.

The drive unit of a positioning table for a component insertion machine is based on a stepping motor and leadscrew mechanism. The specifications are for the table speed to be 25 mm/s over a 600 mm range and for the accuracy to be 0.025 mm. The pitch of the leadscrew = 4.5 mm, and the gear ratio = 5:1 (5 turns of the motor for each turn of the leadscrew). The mechanical errors in the motor, gear box, leadscrew, and table connection are characterized by a normal distribution with standard deviation = 0.005 mm. Determine (a) the minimum number of step angles in the stepping motor, and (b) the frequency of the pulse train required to drive the table at the desired maximum speed for the stepping motor in part (a).

Would this uncertainty have a similar or a different effect on exporting companies and companies using imported inputs?

Scot and Vidia, married taxpayers, earn $240,000 in taxable income and $5,000 in interest from an investment in City of Tampa bonds.  Using the U.S. tax rate schedule for married filing jointly (see Example 1-3), how much federal tax will they owe?  What is their average tax rate?  What is their effective tax rate?  What is their current marginal tax rate?

Briefly comment on how legislation and societal expectations could influence the scope of sustainability management practice within organisations.

Assume the same information as in E14-4, except that Celine Dion Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%. Instructions Prepare the journal entries to record the following. (Round to the nearest dollar.) (a) The issuance of the bonds. (b) The payment of interest and related amortization on July 1, 2014. (c) The accrual of interest and the related amortization on December 31, 2014.

An organisation’s plant in Queensland manufactures a product that is shipped to a branch in Tasmania for sale. Does it make any difference which branch (each is a profit centre) is charged for the cost of transportation? Explain.

If factor X costs twice as much as factor Y (Px/Py = 2), what can be said about the relationship between the MPPs of the two factors if the optimum combination of factors is used?

How is present value related to the concept of a liability?

What factors have to be present for income shifting to be a viable strategy?

Jasper and Crewella Dahvill were married in year 0. They filed joint tax returns in years 1 and 2. In year 3, their relationship was strained and Jasper insisted on filing a separate tax return. In year 4, the couple divorced. Both Jasper and Crewella filed single tax returns in year 4. In year 5, the IRS audited the couple’s joint year 2 tax return and each spouse’s separate year 3 tax returns. The IRS determined that the year 2 joint return and Crewella’s separate year 3 tax return understated Crewella’s self-employment income, causing the joint return year 2 tax liability to be understated by $4,000 and Crewella’s year 3 separate return tax liability to be understated by $6,000. The IRS also assessed penalties and interest on both of these tax returns. Try as it might, the IRS has not been able to locate Crewella, but they have been able to find Jasper.