Question & Answer

With regard to the profit motive, how are credit unions different from other financial institutions? (LO3)

Buying something like a car is at the other end of the spectrum from holding cash. A car is highly illiquid, but yields a high return to the owner. In what form is this ‘return’?

A welding heat source is capable of transferring 150 Btu/min to the surface of a metal part. The heated area is approximately circular, and the heat intensity decreases with increasing radius as follows: 50% of the power is transferred within a circle of diameter = 0.1 inch and 75% is transferred within a concentric circle of diameter = 0.25 in. What are the power densities in (a) the 0.1-inch diameter inner circle and (b) the 0.25-inch diameter ring that lies around the inner circle? (c) Are these power densities sufficient for melting metal?

During a recent management meeting at Sunset Consulting Services, a team member questioned why the costing system had multiple indirect cost pools given it would be easier just to have one.  Provide a brief response to explain why the business has adopted multiple indirect costs pools.

Colin Davis Machine Company maintains a general ledger account for each class of inventory, debiting such accounts for increases during the period and crediting them for decreases. The transactions below relate to the Raw Materials inventory account, which is debited for materials purchased and credited for materials requisitioned for use. 1. An invoice for $8,100, terms f.o.b. destination, was received and entered January 2, 2014. The receiving report shows that the materials were received December 28, 2013. 2. Materials costing $28,000, shipped f.o.b. destination, were not entered by December 31, 2013, “because they were in a railroad car on the company’s siding on that date and had not been unloaded.” 3. Materials costing $7,300 were returned to the supplier on December 29, 2013, and were shipped f.o.b. shipping point. The return was entered on that date, even though the materials are not expected to reach the supplier’s place of business until January 6, 2014. 4. An invoice for $7,500, terms f.o.b. shipping point, was received and entered December 30, 2013. The receiving report shows that the materials were received January 4, 2014, and the bill of lading shows that they were shipped January 2, 2014. 5. Materials costing $19,800 were received December 30, 2013, but no entry was made for them because “they were ordered with a specified delivery of no earlier than January 10, 2014.” Instructions Prepare correcting general journal entries required at December 31, 2013, assuming that the books have not been closed.

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

Identify some reasons why people resist change and the implementation tactics that managers can use to overcome resistance.

The dollar-value LIFO method was adopted by Enya Corp. on January 1, 2014. Its inventory on that date was $160,000. On December 31, 2014, the inventory at prices existing on that date amounted to $140,000. The price level at January 1, 2014, was 100, and the price level at December 31, 2014, was 112. Instructions (a) Compute the amount of the inventory at December 31, 2014, under the dollar-value LIFO method. (b) On December 31, 2015, the inventory at prices existing on that date was $172,500, and the price level was 115. Compute the inventory on that date under the dollar-value LIFO method.

What Motivates You?

Juanita is the sole shareholder of Belize Corporation (a calendar-year S corporation).  She is considering revoking the S election.  It is February 1, year 1.  What options does Juanita have for timing the effective date of the S election revocation?

How does a corporation determine the percentage for its dividends-received deduction?  Explain.

Greco Resort opened for business on June 1 with eight air-conditioned units. Its trial balance on August 31 is as follows. Other data: 1. The balance in prepaid insurance is a one-year premium paid on June 1, 2014. 2. An inventory count on August 31 shows $450 of supplies on hand. 3. Annual depreciation rates are buildings (4%) and equipment (10%). Salvage value is estimated to be 10% of cost. 4. Unearned Rent Revenue of $3,800 was earned prior to August 31. 5. Salaries of $375 were unpaid at August 31. 6. Rentals of $800 were due from tenants at August 31. 7. The mortgage interest rate is 8% per year. Instructions (a) Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31. (Omit explanations.) (b) Prepare an adjusted trial balance on August 31.

Explain the concept of cash flow underwriting. (LO4)

Brad Dolan, a stockholder of Rhode Corporation, has asked you, the firm’s accountant, to explain why his stock warrants were not included in diluted EPS. In order to explain this situation, you must briefly explain what dilutive securities are, why they are included in the EPS calculation, and why some securities are antidilutive and thus not included in this calculation. Rhode Corporation earned $228,000 during the period, when it had an average of 100,000 shares of common stock outstanding. The common stock sold at an average market price of $25 per share during the period. Also outstanding were 30,000 warrants that could be exercised to purchase one share of common stock at $30 per warrant. Instructions Write Mr. Dolan a 1–1.5-page letter explaining why the warrants are not included in the calculation.

Adam Fleeman, a skilled carpenter, started a home improvement business with Tom Collins, a master plumber.  Adam and Tom are concerned about the payroll taxes they will have to pay.  Assume they form an S corporation, and each earns a salary of $80,000 from the corporation; in addition, they expect their share of business profits to be $60,000 each.  How much Social Security tax and Medicare tax (or self-employment tax) will Adam, Tom, and their corporation have to pay on their salary and profits?

1.    : What should Ali Boyer do? What would you actually do if you were in her place? Explain.

Draw a supply and demand diagram with the price of labour (the wage rate) on the vertical axis and the quantity of labour (the number of workers) on the horizontal axis. What will happen to employment if the government raises wages from the equilibrium to some minimum wage above the equilibrium?

A motor vehicle assembly plant closes every August to retool for the next year’s model. How should August’s cost data be used in estimating the overhead cost function?

The management of Tritt Company has asked its accounting department to describe the effect upon the company’s financial position and its income statements of accounting for inventories on the LIFO rather than the FIFO basis during 2014 and 2015. The accounting department is to assume that the change to LIFO would have been effective on January 1, 2014, and that the initial LIFO base would have been the inventory value on December 31, 2013. Presented below are the company’s financial statements and other data for the years 2014 and 2015 when the FIFO method was employed. Financial Position as of 12/31/13 12/31/14 12/31/15 Cash $ 90,000 $130,000 $154,000 Accounts receivable 80,000 100,000 120,000 Inventory 120,000 140,000 176,000 Other assets 160,000 170,000 200,000 Total assets $450,000 $540,000 $650,000 Accounts payable $ 40,000 $ 60,000 $ 80,000 Other liabilities 70,000 80,000 110,000 Common stock 200,000 200,000 200,000 Retained earnings 140,000 200,000 260,000 Total liabilities and equity $450,000 $540,000 $650,000 Income for Years Ended 12/31/14 12/31/15 Sales revenue $900,000 $1,350,000 Less: Cost of goods sold 505,000 756,000 Other expenses 205,000 304,000 710,000 1,060,000 Income before income taxes 190,000 290,000 Income taxes (40%) 76,000 116,000 Net income $114,000 $ 174,000 Other data: 1. Inventory on hand at December 31, 2013, consisted of 40,000 units valued at $3.00 each. 2. Sales (all units sold at the same price in a given year): 2014—150,000 units @ $6.00 each 2015—180,000 units @ $7.50 each 3. Purchases (all units purchased at the same price in given year): 2014—150,000 units @ $3.50 each 2015—180,000 units @ $4.40 each 4. Income taxes at the effective rate of 40% are paid on December 31 each year. Instructions Name the account(s) presented in the financial statements that would have different amounts for 2015 if LIFO rather than FIFO had been used, and state the new amount for each account that is named. Show computations.

How does a money market deposit account differ from other sources of funds for banks? (LO2)

Externalities and sustainability Read the management accounting case at the beginning of this chapter. Using Bank Australia as an example, list some of the positive externalities that might be achieved as a result of its operations. What are some of the negative externalities that could result from the banking operational activities? (LO1 and 3)

Ahmed does not have enough cash on hand to pay his taxes.  He was excited to hear that he can request an extension to file his tax return.  Does this solve his problem?  What are the ramifications if he doesn’t pay his tax liability by April 15?

Aishwarya’s husband passed away in 2016.She needs to determine whether Jasmine, her 17-year-old stepdaughter who is single, qualifies as her dependent in 2017.Jasmine is a resident but not a citizen of the United States.She lived in Aishwarya’s home from June 15 through December 31, 2017. Aishwarya provided more than half of Jasmine’s support for 2017.

What are the types of situations that result in troubled debt?

Could US action to protect its steel industry from foreign competition be justified in terms of the interests of the USA as a whole (as opposed to the steel industry in particular)?