Question & Answer

Explain the argument that the deductions for charitable contributions and home mortgage interest represent indirect subsidies for these activities.

Describe the conditions in which a donation of property to a charity will result in a charitable contribution deduction of fair market value and when it will result in a deduction of the tax basis of the property.

What are the possible channels through which hysteresis effects can arise, such that demand shocks have persistent effects on the macroeconomy?

Describe the possible roles of securities firms in the swap market. (LO1)

What will be the effect on the UK economy if the European Central Bank cuts interest rates?

What is the difference between a bilateral tolerance and a unilateral tolerance?

What are some of the operations required in sand casting after the casting is removed from the mold?

What are recourse and nonrecourse liabilities, and how is each generally allocated to partners?

Cooper Investments reported an unusual gain from the sale of certain assets in its 2014 income statement. How does intraperiod tax allocation affect the reporting of this unusual gain?

Describe two methods for enhancing self-awareness.

Describe a direct placement of bonds. What is an advantage of a private placement? What is a disadvantage? (LO1)

Hiatt Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2014. The insurance company which administers the pension plan provided the following selected information for the years 2014, 2015, and 2016. For Year Ended December 31, 2014 2015 2016 Plan assets (fair value) $50,000 $ 85,000 $180,000 Accumulated benefi t obligation 45,000 165,000 292,000 Projected benefi t obligation 60,000 200,000 324,000 Net (gain) loss (for purposes of corridor calculation) –0– 78,400 86,121 Employer’s funding contribution (made at end of year) 50,000 60,000 105,000 There were no balances as of January 1, 2014, when the plan was initiated. The actual and expected return on plan assets was 10% over the 3-year period, but the settlement rate used to discount the company’s pension obligation was 13% in 2014, 11% in 2015, and 8% in 2016. The service cost component of net periodic pension expense amounted to the following: 2014, $60,000; 2015, $85,000; and 2016, $119,000. The average remaining service life per employee is 12 years. No benefits were paid in 2014, $30,000 of benefits were paid in 2015, and $18,500 of benefits were paid in 2016 (all benefits paid at end of year). Instructions (Round to the nearest dollar.) (a) Calculate the amount of net periodic pension expense that the company would recognize in 2014, 2015, and 2016. (b) Prepare the journal entries to record net periodic pension expense, employer’s funding contribution, and related pension amounts for the years 2014, 2015, and 2016.

A 12-in wafer is processed over a circular area of diameter = 11.75 in. The density of point defects in the surface area is 0.018 defects/in2. The chips to be fabricated are square with an area of 0.16 in2 each. Determine an estimate of the number of good chips using the Bose-Einstein yield computation.

Metheny Corporation’s lease arrangements qualify as sales-type leases at the time of entering into the transactions. How should the corporation recognize revenues and costs in these situations?

Compare task forces, teams, project managers, and relational coordination in terms of how they can provide coordination across departments and hierarchical levels.

Assume that interest rates for most maturities are unusually high. Also assume that the net working capital (defined as current assets minus current liabilities) levels of many corporations are relatively low in this period. Explain how the money markets play a role in this relationship between the interest rates and the level of net working capital. (LO1)

: Describe two of the Big Five personality traits, and explain how each trait might influence a manager’s behaviors toward direct reports.

Risk management The Dancing Goat is the name Logan Jones chose for his café. The origins of the name came from a 1600s fable of a young goat herder watching his goats dance after they ate red coffee beans. Logan wanted his customers to have the same pleasant ‘dancing’ experience when they drank his specialty coffee blends. In his Sopital Lane café in Melbourne, Logan has a central roasting room in which he roasts fresh coffee beans from around the world. He offers 12 blends of coffee and delights customers with the atmosphere of his classy, European-style café with couches and low tables. The Dancing Goat has become very successful and Logan began to expand his operations to several locations around Melbourne. He roasts the coffee at the main Sopital Lane café and transports it daily to the other cafés. Logan now has 10 cafés located around Melbourne. They offer a deliberately small, but high-quality gourmet menu. Logan is well liked by his staff and they all understand his requirement for friendly service, a pleasant atmosphere and excellent coffee. Every new staff member learns to make coffee to Logan’s strict specifications and wears The Dancing Goat uniform with pride. Logan is particularly pleased when returning customers at each of the cafés praise his friendly, well-trained staff. Nevertheless, after several years of successful operations, the profitability of the Dancing Goat has begun to decline. Logan has decided to revisit The Dancing Goat’s ‘branding’ strategy. He recently read the following article relating to the Starbucks decision to ‘unbrand’.   The idea is that the [Starbucks] chain will turn some of its premises into individually branded neighbourhood coffee shops, to find out whether it will do better by adopting a facade that’s more like an old-fashioned neighbourhood coffee shop. In its home-town of Seattle, an outlet called 15th Avenue Coffee and Tea will be the test-bed for this new non-brand, selling beer and wine as well as high end brew.   Logan is particularly interested in Starbuck’s test-bed 15th Avenue Coffee and Tea store, which courted coffee connoisseurs with the same elaborate coffee brewing machines that Logan decided to purchase for The Dancing Goat cafés.   Although Logan is a little dubious about the potential success of the Starbucks’ approach in his operations, he is aware that several café managers are dissatisfied and keen to make significant changes. Logan ponders. Why not let one of the cafés loose for a couple of years to trial a similar unbranding approach? Logan could set simple performance targets based on profitable growth and pay uncapped incentives. He will allow the manager to determine what would best suit the local clientele without too much interference from Logan. After all, Logan knows the manager of the trial café he has selected is not scared to take risks. Logan will be satisfied as long as the profitability of this café remains at an acceptable level.   Required Given your understanding of risk management, briefly provide advice to Logan on: (a) The risk profile and level of risk exposure for The Dancing Goat of the new approach. (b) How Logan might reduce this level of risk exposure. (LO6)

Describe why Congress enacted the UNICAP rules, and describe an exception to these rules.

Which of the following are examples of effective countervailing power?

Using the information in BE5-14, determine Martinez’s free cash flow, assuming that it reported net cash provided by operating activities of $400,000.

Mantle Inc. sells merchandise for cash and also on the installment plan. Entries to record cost of goods sold are made at the end of each year. Repossessions of merchandise (sold in 2014) were made in 2015 and were recorded correctly as follows. Deferred Gross Profi t, 2014 7,200 Repossessed Merchandise 8,000 Loss on Repossession 2,800 Installment Accounts Receivable, 2014 18,000 Part of this repossessed merchandise was sold for cash during 2015, and the sale was recorded by a debit to Cash and a credit to Sales Revenue. The inventory of repossessed merchandise on hand December 31, 2015, is $4,000; of new merchandise, $127,400. There was no repossessed merchandise on hand January 1, 2015. Collections on accounts receivable during 2015 were: Installment Accounts Receivable, 2014 $80,000 Installment Accounts Receivable, 2015 50,000 The cost of the merchandise sold under the installment plan during 2015 was $111,600. The rate of gross profit on 2014 and on 2015 installment sales can be computed from the information given. MANTLE INC. TRIAL BALANCE DECEMBER 31, 2015 Dr. Cr. Cash $118,400 Installment Accounts Receivable, 2014 80,000 Installment Accounts Receivable, 2015 130,000 Inventory, Jan. 1, 2015 120,000 Repossessed Merchandise 8,000 Accounts Payable $ 47,200 Deferred Gross Profi t, 2014 64,000 Common Stock 200,000 Retained Earnings 40,000 Sales Revenue 400,000 Installment Sales 180,000 Purchases 360,000 Loss on Repossession 2,800 Operating Expenses 112,000 $931,200 $931,200 Instructions (a) From the trial balance and other information given above, prepare adjusting and closing entries as of December 31, 2015. (b) Prepare an income statement for the year ended December 31, 2015. Include only the realized gross profit in the income statement.

Describe how mortgage-backed securities (MBS) are used. (LO4)

Explain why some futures contracts may be more suitable than others for hedging exposure to interest rate risk. (LO2)

Classify the following items as (1) operating, (2) investing, (3) financing, or (4) significant non-cash investing and financing activities, using the direct method. (a) Cash payments to employees. (b) Redemption of bonds payable. (c) Sale of building at book value. (d) Cash payments to suppliers. (e) Exchange of equipment for furniture. (f) Issuance of preferred stock. (g) Cash received from customers. (h) Purchase of treasury stock. (i) Issuance of bonds for land. (j) Payment of dividends. (k) Purchase of equipment. (l) Cash payments for operating expenses.