Question & Answer

Briefly discuss the IASB and FASB efforts to converge their accounting guidelines for leases.

What is the primary objective of financial reporting?

Assume that oil begins to run out and that extraction becomes more expensive. Trace through the effects of this on the market for oil and the market for other fuels.

Presented below is information related to Rembrandt Inc.’s inventory. (per unit) Skis Boots Parkas Historical cost $190.00 $106.00 $53.00 Selling price 212.00 145.00 73.75 Cost to distribute 19.00 8.00 2.50 Current replacement cost 203.00 105.00 51.00 Normal profi t margin 32.00 29.00 21.25 Determine the following: (a) the two limits to market value (i.e., the ceiling and the floor) that should be used in the lower-of-cost-or-market computation for skis, (b) the cost amount that should be used inthe lower-of-cost-or-market comparison of boots, and (c) the market amount that should be used to valueparkas on the basis of the lower-of-cost-or-market.

“The goal of tax planning is to minimize taxes.”  Explain why this statement is not true.

On November 1, 2014, Columbo Company adopted a stock-option plan that granted options to key executives to purchase 30,000 shares of the company’s $10 par value common stock. The options were granted on January 2, 2015, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $40, and the fair value option-pricing model determines the total compensation expense to be $450,000. All of the options were exercised during the year 2017: 20,000 on January 3 when the market price was $67, and 10,000 on May 1 when the market price was $77 a share. Instructions Prepare journal entries relating to the stock option plan for the years 2015, 2016, and 2017. Assume that the employee performs services equally in 2015 and 2016.

] Lindley has become very frustrated in researching a tax issue using keyword searches.  What suggestions can you give her?

Effects of robotic equipment on overhead rates 'Our costs are out of control, our accounting system is screwed up, or both!' screamed the sales manager. 'We are simply non-competitive on a great many of the jobs we bid on. Just last week we lost a customer when a competitor underbid us by 25 per cent! And I bid the job at cost because the customer has been with us for years but has been complaining about our prices.'                                 This problem, raised at the weekly management meeting, has been getting worse over the years. The Johnson Tool Company produces parts for specific customer orders. When the entity first became successful, it employed nearly 500 skilled machinists. Over the years the entity has become increasingly automated and now uses a number of different robotic machines. It currently employs only 75 production workers but output has quadrupled.   The problems raised by the sales manager can be seen in the portions of two bid sheets brought to the meeting (as reproduced). The bids are from the cutting department, but the relative size of these three types of manufacturing costs is similar for other departments.   The cutting department charges overhead to products based on direct labour hours. For the current period, the department expects to use 4000 direct labour hours. Departmental overhead, consisting mostly of depreciation on the robotic equipment, is expected to be $1 480 000.   An employee can typically set up any job on the appropriate equipment in about 15 minutes. Once machines are operating, an employee oversees five to eight machines simultaneously. All that is required is to load or unload materials and monitor calibrations. The department’s robotic machines will log a total of 25 000 hours of run time in the current period.   For bid 74683 the entity was substantially underbid by a competitor. The entity did get the job for bid 74687, but the larger jobs are harder to find. Small jobs arise frequently, but the entity is rarely successful in obtaining them.             Required (a)     Critique the cost allocation method used within the current cost accounting system. (b)     Suggest a better approach for allocating overhead. Allocate costs using your approach and compare the costs of both jobs under the two systems. (c)      Discuss the pros and cons of using job costs to determine the price for a job order.

1. Which of the economies of scale we have considered are due to increasing returns to scale and which are due to other factors? 2. What economies of scale is a large department store likely to experience?

In January, Prahbu purchased for $90,000 a new machine for use in an existing production line of his manufacturing business. Assume that the machine is a unit of property and is not a material or supply. Prahbu pays $2,500 to install the machine, and after the machine is installed, he pays $1,300 to perform a critical test on the machine to ensure that it will operate in accordance with quality standards. On November 1, the critical test is complete, and Prahbu places the machine in service on the production line. On December 3, Prahbu pays another $3,300 to perform periodic quality control testing after the machine is placed in service. How much will Prahbu be required to capitalize as the cost of the machine?

Eastman Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Corporate records disclose the following. Inventory (beginning) $ 80,000 Sales revenue $415,000 Purchases 290,000 Sales returns 21,000 Purchase returns 28,000 Gross profi t % based on net selling price 35% Merchandise with a selling price of $30,000 remained undamaged after the fire, and damaged merchandise has a net realizable value of $8,150. The company does not carry fire insurance on its inventory. Instructions Prepare a formal labeled schedule computing the fire loss incurred. (Do not use the retail inventory method.)

Compare actual and normal cost systems. Discuss the ways in which they are similar and the ways they differ.

Assume that your friend Will Morris, who is a music major, asks you to define and discuss the nature of a liability. Assist him by preparing a definition of a liability and by explaining to him what you believe are the elements or factors inherent in the concept of a liability.

Many years ago a famous member of Congress proposed eliminating federal income tax withholding.  What criterion for evaluating tax systems did this proposal violate?  What would likely have been the result of eliminating withholding?

In an examination of Arenes Corporation as of December 31, 2014, you have learned that the following situations exist. No entries have been made in the accounting records for these items. 1. The corporation erected its present factory building in 1999. Depreciation was calculated by the straight-line method, using an estimated life of 35 years. Early in 2014, the board of directors conducted a careful survey and estimated that the factory building had a remaining useful life of 25 years as of January 1, 2014. 2. An additional assessment of 2013 income taxes was levied and paid in 2014. 3. When calculating the accrual for officers’ salaries at December 31, 2014, it was discovered that the accrual for officers’ salaries for December 31, 2013, had been overstated. 4. On December 15, 2014, Arenes Corporation declared a cash dividend on its common stock outstanding, payable February 1, 2015, to the common stockholders of record December 31, 2014. Instructions Describe fully how each of the items above should be reported in the financial statements of Arenes Corporation for the year 2014.

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)

Molto Stancha Corporation had zero earnings this fiscal year; in fact, it lost money. Must the corporation file a tax return?

What is filament winding?

Imagine that a country can produce just two things: goods and services. Assume that over a given period it could produce any of the following combinations:                   Units of goods 0 10 20 30 40 50 60 70 80 90 100 Units of services 80 79 77 74 70 65 58 48 35 19 0  (a)         Draw the country’s production possibility curve. (b)         Assuming that the country is currently producing 40 units of goods and 70 units of services, what is the opportunity cost of producing another 10 units of goods?  (c)         Explain how the figures illustrate the principle of increasing opportunity cost. (d)         Now assume that technical progress leads to a 10 per cent increase in the output of goods for any given amount of resources. Draw the new production possibility curve. How has the opportunity cost of producing extra units of services altered?

One of the mandrel types in electroforming is a solid mandrel. How is the part removed from a solid mandrel?

: Explain how expense budgets and cash budgets are useful as management controls.

Explain how the federal funds market facilitates bank operations. (LO2)

Oak Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, Glover, and has always operated as a C corporation.  However, at the beginning of this year, Glover made a qualifying S election for Oak Corp., effective January 1.  Oak Corp. did not have any C corporation earnings and profits on that date.  On June 1, Oak Corp. distributed $15,000 to Glover.  What are the amount and character of gain Glover must recognize on the distribution, and what is his basis in his Oak Corp. stock in each of the following alternate scenarios?

Many business organizations have been concerned with providing for the retirement of employees since the late 1800s. During recent decades, a marked increase in this concern has resulted in the establishment of private pension plans in most large companies and in many medium- and small-sized ones. The substantial growth of these plans, both in numbers of employees covered and in amounts of retirement benefits, has increased the significance of pension costs in relation to the financial position, results of operations, and cash flows of many companies. In examining the costs of pension plans, a CPA encounters certain terms. The components of pension costs that the terms represent must be dealt with appropriately if generally accepted accounting principles are to be reflected in the financial statements of entities with pension plans. Instructions (a) Define a private pension plan. How does a contributory pension plan differ from a noncontributory plan? (b) Differentiate between “accounting for the employer” and “accounting for the pension fund.” (c) Explain the terms “funded” and “pension liability” as they relate to: (1) The pension fund. (2) The employer. (d) (1) Discuss the theoretical justification for accrual recognition of pension costs. (2) Discuss the relative objectivity of the measurement process of accrual versus cash (pay-as-you-go) accounting for annual pension costs. (e) Distinguish among the following as they relate to pension plans. (1) Service cost. (2) Prior service costs. (3) Vested benefits.

Name the commonly used coating materials deposited by PVD onto cutting tools?