Question & Answer

What are the general rules for how gains or losses on retirement of plant assets should be reported in income?

1.    : A survey found that 69 percent of MBA students view maximizing shareholder value as the primary responsibility of a company. The Business Roundtable’s new Statement on the Purpose of a Corporation said that five major stakeholders should receive equal attention. With which view do you agree? Why?

What is the purpose of the statement of cash flows? What information does it provide?

Upland Company borrowed $40,000 on November 1, 2014, by signing a $40,000, 9%, 3-month note. Prepare Upland’s November 1, 2014, entry; the December 31, 2014, annual adjusting entry; and the February 1, 2015, entry

Anne purchased an annuity from an insurance company that promised to pay her $20,000 per year for the next 10years.  Anne paid $145,000 for the annuity, and in exchange she will receive $200,000 over the term of the annuity.            a.  How much of the first $20,000 payment should Anne include in gross income? b.  How much income will Anne recognize over the term of the annuity?

Crane Corporation has the following accounts included in its December 31, 2014, trial balance: Equity Investments (trading) $21,000; Goodwill $150,000; Prepaid Insurance $12,000; Patents $220,000; Franchises $130,000. Prepare the intangible assets section of the balance sheet.

On January 1, 2013, when its $30 par value common stock was selling for $80 per share, Plato Corp. issued $10,000,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the corporation’s common stock. The debentures were issued for $10,800,000. The present value of the bond payments at the time of issuance was $8,500,000, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2014, the corporation’s $30 par value common stock was split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2015, when the corporation’s $15 par value common stock was selling for $135 per share, holders of 30% of the convertible debentures exercised their conversion options. The corporation uses the straightline method for amortizing any bond discounts or premiums. Instructions (a) Prepare in general journal form the entry to record the original issuance of the convertible debentures. (b) Prepare in general journal form the entry to record the exercise of the conversion option, using the book value method  Show supporting computations in good form.

Why is friction generally undesirable in metal forming operations?

Describe the exchange-rate path if there were a single shock that caused interest rates to fall. What determines the magnitude and speed of changes in the exchange rate in such a scenario?

Some countries do not have well-established markets for debt securities or equity securities. Why do you think this can limit the development of the country, business expansion, and growth in national income in these countries? (LO3)

Fiedler Co. follows the practice of valuing its inventory at the lower-of-cost-or-market. The following information is available from the company’s inventory records as of December 31, 2014 Item Quantity Unit Cost Replacement Cost/Unit Estimated Selling Price/Unit Completion & Disposal Cost/Unit Normal Profit Margin/Unit A 1,100 $7.50 $8.40 $10.50 $1.50 $1.80 B 800 8.20 7.90 9.40 0.90 1.20 C 1,000 5.60 5.40 7.20 1.15 0.60 D 1,000 3.80 4.20 6.30 0.80 1.50 E 1,400 6.40 6.30 6.70 0.70 1.00 Instructions Greg Forda is an accounting clerk in the accounting department of Fiedler Co., and he cannot understand why the market value keeps changing from replacement cost to net realizable value to something that he cannot even figure out. Greg is very confused, and he is the one who records inventory purchases and calculates ending inventory. You are the manager of the department and an accountant. (a) Calculate the lower-of-cost-or-market using the “individual item” approach. (b) Show the journal entry he will need to make in order to write down the ending inventory from cost to market. (c) Then write a memo to Greg explaining what designated market value is as well as how it is computed. Use your calculations to aid in your explanation.

Describe the 12-month rule for determining whether and to what extent businesses should capitalize or immediately deduct prepaid expenses such as insurance or security contracts. Explain the apparent rationale for this rule.

The gage length of a tensile test specimen = 150 mm. It is subjected to a tensile test in which the grips holding the end of the test specimen are moved with a relative velocity = 0.1 m/s. Construct a plot of the strain rate as a function of length as the specimen is pulled to a length = 200 mm.

The designer of a polar configuration robot is considering a portion of the manipulator consisting of a rotational joint connected to its output link. The output link is 25 in long and the rotational joint has a range of 75°. The accuracy of the joint-link combination, expressed as a linear measure at the end of the link which results from rotating the joint, is specified as 0.030 in. The mechanical inaccuracies of the joint result in a repeatability error = ±0.030° of rotation. It is assumed that the link is perfectly rigid, so there are no additional errors due to deflection. (a) Show that the specified accuracy can be achieved, given the repeatability error. (b) Determine the minimum number of bits required in the binary register of the robot's control memory to achieve the specified accuracy.

The estate of Monique Chablis earned $450 of income this year. Is the estate required to file an income tax return?

18    Direct and indirect costs Frida’s Tax Practice has two departments, tax and audit. The tax department has two product lines, business returns and individual returns. A list of costs and three cost objects from Frida’s Tax Practice follow.   Required For each cost, identify whether it is direct or indirect for each cost object.

Assume that a bank has the following simplified balance sheet, and is operating at its desired liquidity ratio. Liabilities (£m)   Assets (£m) Deposits 100   —— 100   Balances with the central bank Advances 10 90 —— 100            Now assume that the central bank repurchases £5 million of government bonds on the open market. Assume that the people who sell the bonds all have their accounts with this bank.          (a)  Draw up the new balance sheet directly after the purchase of the bonds.          (b)  Now draw up the eventual balance sheet after all credit creation has taken place.          (c)  Would there be a similar effect if the central bank rediscounted £5 billion of Treasury bills?          (d)  How would such open market operations affect the rate of interest?

What are the three phases in shop floor control?

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

List the types of environments that can be present during the sintering process according to the powder metallurgy video.

On July 1, 2015, Fontaine Company purchased for cash 40% of the outstanding capital stock of Knoblett Company. Both Fontaine Company and Knoblett Company have a December 31 year-end. Knoblett Company, whose common stock is actively traded in the over-the-counter market, reported its total net income for the year to Fontaine Company and also paid cash dividends on November 15, 2015, to Fontaine Company and its other stockholders. Instructions How should Fontaine Company report the above facts in its December 31, 2015, balance sheet and its income statement for the year then ended? Discuss the rationale for your answer.

Describe the practice of cross hedging and explain when this strategy might be used. (LO2)

Appliance Center is an experienced home appliance dealer. Appliance Center also offers a number of services together with the home appliances that it sells. Assume that Appliance Center sells ovens on a standalone basis. Appliance Center also sells installation services and maintenance services for ovens. However, Appliance Center does not offer installation or maintenance services to customers who buy ovens from other vendors. Pricing for ovens is as follows. Oven only $ 800 Oven with installation service 850 Oven with maintenance services 975 Oven with installation and maintenance services 1,000 In each instance in which maintenance services are provided, the maintenance service is separately priced within the arrangement at $175. Additionally, the incremental amount charged by Appliance Center for installation approximates the amount charged by independent third parties. Ovens are sold subject to a general right of return. If a customer purchases an oven with installation and/or maintenance services, in the event Appliance Center does not complete the service satisfactorily, the customer is only entitled to a refund of the portion of the fee that exceeds $800. Instructions (a) Assume that a customer purchases an oven with both installation and maintenance services for $1,000. Based on its experience, Appliance Center believes that it is probable that the installation of the equipment will be performed satisfactorily to the customer. Assume that the maintenance services are priced separately. Explain whether the conditions for a multiple-deliverable arrangement exist in this situation. (b) Indicate the amount of revenues that should be allocated to the oven, the installation, and to the maintenance contract.

For the following independent cases, determine whether economic income is present and, if so, whether it must be included in gross income (that is, is it realized and recognized for tax purposes?).

Strategy, balanced scorecard for organisation and employee Mark Hopper owns Dane Champions, a dog kennel that raises champion Great Danes for showing and breeding. His vision is to be the best-known breeder of Great Danes globally. His strategy is to breed and sell dogs from outstanding lineage from the standpoint of both physical health and good-natured temperaments. Following is information about operations over the last year.       Required (a)     Is the entity’s strategy one of cost leadership or product differentiation? Explain. (b)  (i)  Prepare a simple balanced scorecard with one performance measure for            each of the four perspectives for Dane Champions using only the data           presented. Explain your choices           (ii)  Explain how these measures are linked. (c)     Kennel operating costs include the cost of a local high school student who cleans out the kennels every afternoon after school. Mark is considering whether to set up an individual scorecard for the student. He only pays minimum wage, and although the student is fairly slow, the kennels are kept reasonably clean. Mark wonders whether the student would resent being monitored more closely. Describe one reason for using a scorecard with the student and one reason against using it.