Question & Answer

Palmer Co. is evaluating the appropriate accounting for the following items. 1. Management has decided to switch from the FIFO inventory valuation method to the LIFO inventory valuation method for all inventories. 2. When the year-end physical inventory adjustment was made for the current year, the controller discovered that the prior year’s physical inventory sheets for an entire warehouse were mislaid and excluded from last year’s count. 3. Palmer’s Custom Division manufactures large-scale, custom-designed machinery on a contract basis. Management decided to switch from the completed-contract method to the percentage-ofcompletion method of accounting for long-term contracts. Identify and explain whether each of the above items is a change in accounting principle, a change in estimate, or an error.

Define legal–political risk and give an example of how it can affect an international corporation.

Explain how the amount of cash payments to suppliers is computed under the direct method.

What is the meaning of the forward rate in the context of the term structure of interest rates? Why might forward rates consistently overestimate future interest rates? How could such a bias be avoided? (LO3)

How does a weak dollar affect U.S. inflation? Explain. (LO2)

Martin Corporation is planning to issue 3,000 shares of its own $10 par value common stock for two acres of land to be used as a building site. Instructions (a) What general rule should be applied to determine the amount at which the land should be recorded? (b) Under what circumstances should this transaction be recorded at the fair value of the land? (c) Under what circumstances should this transaction be recorded at the fair value of the stock issued? (d) Assume Martin intentionally records this transaction at an amount greater than the fair value of the land and the stock. Discuss this situation.

Neville Enterprises has a number of fully depreciated assets that are still being used in the main operations of the business. Because the assets are fully depreciated, the president of the company decides not to show them on the balance sheet or disclose this information in the notes. Evaluate this procedure.

Explain how to calculate a weighted average contribution margin per unit.

Statements of Financial Accounting Concepts set forth financial accounting and reporting objectives and fundamentals that will be used by the Financial Accounting Standards Board in developing standards. Concepts Statement No. 6 defines various elements of financial statements. Instructions Answer the following questions based on SFAC No. 6. (a) Define and discuss the term “equity.” (b) What transactions or events change owners’ equity? (c) Define “investments by owners” and provide examples of this type of transaction. What financial statement element other than equity is typically affected by owner investments? (d) Define “distributions to owners” and provide examples of this type of transaction. What financial statement element other than equity is typically affected by distributions? (e) What are examples of changes within owners’ equity that do not change the total amount of owners’ equity?

What are some of the arguments in favor of using the indirect (reconciliation) method as opposed to the direct method for reporting a statement of cash flows?

Give an example of how a business can reduce variable costs by increasing fixed costs.

1.      : Recommend strongly to the president that Tacoma pay the bonuses as promised. The legal contracts and financial situation don’t matter. Be prepared to resign if the bonuses are not paid as you promised. Your word and a motivated sales team mean everything to you.

Garcia Corporation purchased a truck by issuing an $80,000, 4-year, zero-interest-bearing note to Equinox Inc. The market rate of interest for obligations of this nature is 10%. Prepare the journal entry to record the purchase of this truck.

Explain the characteristics of effective goals.

Explain how the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) reduced the perceived risk of savings institutions. (LO1)

Jada (age 53) and Elijah (age 60) are married, and both are self-employed. In 2024, they participate in a health insurance plan with a $3,000 annual deductible and out-of-pocket maximum of $9,000. The only other health plan they have is a vision insurance plan. Are they eligible to contribute to a health savings account? Why or why not. If so, what is their maximum HSA contribution and deduction?

Strategic plans; balanced scorecard measures for not-for-profit entity You have been invited by a classmate to help found a new not-for-profit organisation named Students Care. The organisation’s purpose is to provide scholarship money for children in Africa who have become orphans because of the AIDS epidemic. The organisation will operate only on campus, and the target donors are students. Suppose a wealthy businesswoman has offered to coordinate distribution of the scholarship funds to needy students, but wants to see a business plan for the organisation that describes the organisational vision and lists the core competencies, strategies, and operating plans.   Required (a)     Explain what each item on businesswoman’s list means. For each item, provide a possible example for Students Care. (b)     Consider the perspective of internal business processes. Your classmate wants to measure the number of hours per week that volunteers spend collecting donations, but you believe it should be dollars collected per volunteer hour spent in collection, measured on a weekly basis. Give one advantage and one disadvantage for each measure. (c)     You have had difficulty determining a measure of learning and growth, but a campus association recently organised a series of short workshops on improving student fundraising activities, as well as other aspects of governing student entities. Discuss the advantages and disadvantages of using the number of Students Care volunteers attending workshops as a measure for this perspective. (d)     Outline how the use of a strategy map might have been useful in the balanced scorecard process.

What is an electrolyte?

Jane Yoakam, president of Estefan Co., recently read an article that claimed that at least 100 of the country’s largest 500 companies were either adopting or considering adopting the last-in, first-out (LIFO) method for valuing inventories. The article stated that the firms were switching to LIFO to (1) neutralize the effect of inflation in their financial statements, (2) eliminate inventory profits, and (3) reduce income taxes. Ms. Yoakam wonders if the switch would benefit her company. Estefan currently uses the first-in, first-out (FIFO) method of inventory valuation in its periodic inventory system. The company has a high inventory turnover rate, and inventories represent a significant proportion of the assets. Ms. Yoakam has been told that the LIFO system is more costly to operate and will provide little benefit to companies with high turnover. She intends to use the inventory method that is best for the company in the long run rather than selecting a method just because it is the current fad. Instructions (a) Explain to Ms. Yoakam what “inventory profits” are and how the LIFO method of inventory valuation could reduce them. (b) Explain to Ms. Yoakam the conditions that must exist for Estefan Co. to receive tax benefits from a switch to the LIFO method.

Discuss the behavioural issues that need to be considered when establishing a standard cost.

On January 3, 2013, Martin Company purchased for $500,000 cash a 10% interest in Renner Corp. On that date, the net assets of Renner had a book value of $3,700,000. The excess of cost over the underlying equity in net assets is attributable to undervalued depreciable assets having a remaining life of 10 years from the date of Martin’s purchase. The fair value of Martin’s investment in Renner securities is as follows: December 31, 2013, $560,000, and December 31, 2014, $515,000. On January 2, 2015, Martin purchased an additional 30% of Renner’s stock for $1,545,000 cash when the book value of Renner’s net assets was $4,150,000. The excess was attributable to depreciable assets having a remaining life of 8 years. During 2013, 2014, and 2015, the following occurred. Renner Dividends Paid by Net Income Renner to Martin 2013 $350,000 $15,000 2014 450,000 20,000 2015 550,000 70,000 Instructions On the books of Martin Company, prepare all journal entries in 2013, 2014, and 2015 that relate to its investment in Renner Corp., reflecting the data above and a change from the fair value method to the equity method.

In a weak economy, the Fed commonly implements a stimulative monetary policy to lower interest rates and presumes that firms will be more willing to borrow money. Even if banks are willing to lend such funds, why might such a presumption about the willingness of firms to borrow be wrong? What are the consequences if the presumption is wrong? (LO2)

Why are particles and flakes members of the same basic class of reinforcing material?

There exists a view that the UK is too small an economy to benefit from competition in many industries, with firms failing to reach minimum efficient scale. What does this imply for competition policy?

The asset-liability approach for recording deferred income taxes is an integral part of generally accepted accounting principles. Instructions (a) Indicate whether each of the following independent situations should be treated as a temporary difference or as a permanent difference, and explain why. (1) Estimated warranty costs (covering a 3-year warranty) are expensed for financial reporting purposes at the time of sale but deducted for income tax purposes when paid. (2) Depreciation for book and income tax purposes differs because of different bases of carrying the related property, which was acquired in a trade-in. The different bases are a result of different rules used for book and tax purposes to compute the basis of property acquired in a trade-in. (3) A company properly uses the equity method to account for its 30% investment in another company. The investee pays dividends that are about 10% of its annual earnings. (4) A company reports a gain on an involuntary conversion of a nonmonetary asset to a monetary asset. The company elects to replace the property within the statutory period using the total proceeds so the gain is not reported on the current year’s tax return. (b) Discuss the nature of the deferred income tax accounts and possible classifications in a company’s balance sheet. Indicate the manner in which these accounts are to be reported.