Question & Answer

Margaret Avery Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2012, the company expends $325,000 on a research project, but by the end of 2012, it is impossible to determine whether any benefit will be derived from it. (a) What account should be charged for the $325,000, and how should it be shown in the financial statements? (b) The project is completed in 2013, and a successful patent is obtained. The R&D costs to complete the project are $130,000 ($36,000 of these costs were incurred after achieving economic viability). The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2013 total $24,000. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also,record patent amortization (full year) in 2013. (c) In 2014, the company successfully defends the patent in extended litigation at a cost of $47,200, thereby extending the patent life to December 31, 2021. What is the proper way to account for thiscost?Also, record patent amortization (full year) in 2014. (d) Additional engineering and consulting costs incurred in 2014 required to advance the design of a new version of the product to the manufacturing stage total $60,000. These costs enhance the design of the product considerably, but it is highly uncertain if there will be a market for the new version of the product. Discuss the proper accounting treatment for this cost.

Barrick Gold Corporation, with headquarters in Toronto, Canada, is the world’s most profitable and largest gold mining company outside South Africa. Part of the key to Barrick’s success has been due to its ability to maintain cash flow while improving production and increasing its reserves of goldcontaining property. In the most recent year, Barrick achieved record growth in cash flow, production, and reserves. The company maintains an aggressive policy of developing previously identified target areas that have the possibility of a large amount of gold ore, and that have not been previously developed. Barrick limits the riskiness of this development by choosing only properties that are located in politically stable regions, and by the company’s use of internally generated funds, rather than debt, to finance growth. Barrick’s inventories are as follows.   Instructions (a) Why do you think that there are no finished goods inventories? Why do you think the raw material, ore in stockpiles, is considered to be a non-current asset? (b) Consider that Barrick has no finished goods inventories. What journal entries are made to record a sale? (c) Suppose that gold bullion that cost $1.8 million to produce was sold for $2.4 million. The journal entry was made to record the sale, but no entry was made to remove the gold from the gold in process inventory. How would this error affect the following? Balance Sheet Income Statement Inventory ? Cost of goods sold ? Retained earnings ? Net income ? Accounts payable ? Working capital ? Current ratio ?

What are the advantages and disadvantages to a firm that issues low- or zero-coupon bonds? (LO2)

Olga Conrad, a financial writer, noted recently, “There are substantial arguments for including earnings projections in annual reports and the like. The most compelling is that it would give anyone interested something now available to only a relatively select few—like large stockholders, creditors, and attentive bartenders.” Identify some arguments against providing earnings projections.

Which factors influence a security’s liquidity? (LO2)

Discuss at least two items that are important to the value of companies like Intel or IBM but that are not recorded in their balance sheets. What are some reasons why these items are not recorded in the balance sheet?

Sandy has determined that her research question depends upon the interpretation of the phrase “not compensated by insurance.”  What type of research question is this?

Independence Corporation needs to replace some of the assets used in its trade or business and is contemplating the following exchanges:   Exchange Asset Given Up by Independence Asset Received by Independence A Office building in Chicago, IL Piece of land in Toronto, Canada B Large warehouse on 2 acres Small warehouse on 22 acres C Office building in Green Bay, WI, used in the business Apartment complex in Newport Beach, CA, that will be held as an investment

Explain why interest rates changed as they did over the past year. (LO2)

Using the information in E20-22, prepare a worksheet inserting January 1, 2014, balances, showing December 31, 2014, balances, and the journal entry recording postretirement benefit expense.

Wire stock of initial diameter = 0.125 in is drawn through two dies each providing a 0.20 area reduction. The starting metal has a strength coefficient = 40,000 lb/in2 and a strain hardening exponent = 0.15. Each die has an entrance angle of 12°, and the coefficient of friction at the work-die interface is estimated to be 0.10. The motors driving the capstans at the die exits can each deliver 1.50 hp at 90% efficiency. Determine the maximum possible speed of the wire as it exits the second die.

Determine whether a taxpayer can change their election to itemize deductions once a return is filed. (Hint: Read about itemization under Reg. §1.63-1.)

Describe the short selling process. Explain the short interest ratio. (LO1)

The adjusted trial balance of Anderson Cooper Co. as of December 31, 2014, contains the following. (a) Prepare an income statement. (b) Prepare a statement of retained earnings. (c) Prepare a classified balance sheet.

Horton Corporation is preparing a bank reconciliation and has identified the following potential reconciling items. For each item, indicate if it is (1) added to balance per bank statement, (2) deducted from balance per bank statement, (3) added to balance per books, or (4) deducted from balance per books. (a) Deposit in transit $5,500. (d) Outstanding checks $7,422. (b) Bank service charges $25. (e) NSF check returned $377. (c) Interest credited to Horton’s account $31.

Why do forecasts of interest rates made by experts differ? (LO3)

The book basis of depreciable assets for Erwin Co. is $900,000, and the tax basis is $700,000 at the end of 2015. The enacted tax rate is 34% for all periods. Determine the amount of deferred taxes to be reported on the balance sheet at the end of 2015.

The two axes of an x-y positioning table are each driven by a stepping motor connected to a leadscrew with a 10:1 gear reduction. The step angle on each stepping motor is 7.5°. Each leadscrew has a pitch = 5.0 mm and provides an axis range = 300.0 mm. There are 16 bits in each binary register used by the controller to store position data for the two axes. (a) What is the control resolution of each axis? (b) What are the required rotational speeds and corresponding pulse train frequencies of each stepping motor in order to drive the table at 600 mm/min in a straight line from point (25, 25) to point (100, 150)? Ignore acceleration.

In a turning operation on plain carbon steel whose Brinell hardness = 275 HB, the cutting speed is set at 200 m/min and depth of cut = 6.0 mm. The lathe motor is rated at 25 kW, and its mechanical efficiency = 90%. Using the appropriate specific energy value from Table 21.2, determine the maximum feed that can be set for this operation. Use of a spreadsheet calculator is recommended for the iterative calculations required in this problem.

The common stock of Alexander Hamilton Inc. is currently selling at $120 per share. The directors wish to reduce the share price and increase share volume prior to a new issue. The per share par value is $10; book value is $70 per share. Nine million shares are issued and outstanding. Instructions Prepare the necessary journal entries assuming the following. (a) The board votes a 2-for-1 stock split. (b) The board votes a 100% stock dividend. (c) Briefly discuss the accounting and securities market differences between these two methods of increasing the number of shares outstanding.

: Outline a step-by-step system for managing yourself and your time.

Under what circumstances will a liquidating corporation be allowed to recognize a loss in a non-pro rata distribution?

Granite Slab LLC was recently formed with the following members:

Define density as a material property.

Discuss the accounting treatment or disclosure that should be accorded a declared but unpaid cash dividend, an accumulated but undeclared dividend on cumulative preferred stock, and a stock dividend distributable.