Question & Answer

Dain’s Diamond Bit Drilling purchased the following assets this year. Assume its taxable income for the year was $53,000 for purposes of computing the §179 expense (assume no bonus depreciation).

One common argument for imposing so-called sin taxes is the social goal of reducing demand for such products.  Using cigarettes as an example, is there a segment of the population that might be sensitive to price and for whom high taxes might discourage purchases?

On January 1, 2014, Blair Corporation purchased for $500,000 a tract of land (site number 101) with a building. Blair paid a real estate broker’s commission of $36,000, legal fees of $6,000, and title guarantee insurance of $18,000. The closing statement indicated that the land value was $500,000 and the building value was $100,000. Shortly after acquisition, the building was razed at a cost of $54,000. Blair entered into a $3,000,000 fixed-price contract with Slatkin Builders, Inc. on March 1, 2014, for the construction of an office building on land site number 101. The building was completed and occupied on September 30, 2015. Additional construction costs were incurred as follows. Plans, specifi cations, and blueprints $21,000 Architects’ fees for design and supervision 82,000 The building is estimated to have a 40-year life from date of completion and will be depreciated using the 150% declining-balance method. To finance construction costs, Blair borrowed $3,000,000 on March 1, 2014. The loan is payable in 10 annual installments of $300,000 starting on March 1, 2015, plus interest at the rate of 10%. Blair’s weighted-average amounts of accumulated building construction expenditures were as follows. For the period March 1 to December 31, 2014 $1,300,000 For the period January 1 to September 30, 2015 1,900,000 Instructions (a) Prepare a schedule that discloses the individual costs making up the balance in the land account in respect of land site number 101 as of September 30, 2015. (b) Prepare a schedule that discloses the individual costs that should be capitalized in the office building account as of September 30, 2015 Show supporting computations in good form.

{Planning} Clark owns stock in BCS Corporation that he purchased in January of the current year.  The stock has appreciated significantly during the year.  It is now December of the current year, and Clark is deciding whether or not he should sell the stock.  What tax and nontax factors should Clark consider before making the decision on whether to sell the stock now?

The financial statements of P&G are presented in Appendix 5B. The company’s complete annual report, including the notes to the financial statements, can be accessed at the book’s companion website, www. wiley.com/college/kieso. Instructions Refer to P&G’s financial statements and the accompanying notes to answer the following questions. (a) What criteria does P&G use to classify “Cash and cash equivalents” as reported in its balance sheet? (b) As of June 30, 2011, what balances did P&G have in cash and cash equivalents? What were the major uses of cash during the year? (c) P&G reports no allowance for doubtful accounts, suggesting that bad debt expense is not material for this company. Is it reasonable that a company like P&G would not have material bad debt expense? Explain.

LaBouche Corporation owns a warehouse. On November 1, it rented storage space to a lessee (tenant) for 3 months for a total cash payment of $2,400 received in advance. Prepare LaBouche’s November 1 journal entry and the December 31 annual adjusting entry.

On March 1, 2014, Pechstein Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,400,000. The building was completed by October 31, 2016. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2014, 2015, and 2016 are given below. 2014 2015 2016 Contract costs incurred during the year $2,880,000 $2,230,000 $2,190,000 Estimated costs to complete the contract at 12/31 3,520,000 2,190,000 –0– Billings to Fabrik during the year 3,200,000 3,500,000 1,700,000 Instructions (a) Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2014, 2015, and 2016. (Ignore income taxes.) (b) Using the completed-contract method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2014, 2015, and 2016. (Ignore incomes taxes.)

An investment newsletter suggests that because the prevailing stock market conditions are subject to much uncertainty, investors should purchase call options on the CBOE volatility index (VIX). Write a short essay on the logic behind how the valuation of VIX is influenced by market uncertainty. Also support or refute the advice provided by the newsletter and offer a strategy for investing in call options on the VIX based on expectations of changes in market uncertainty.

As the new staff person in your company’s treasury department, you have been asked to conduct research related to a proposed transfer of receivables. Your supervisor wants the authoritative sources for the following items that are discussed in the receivables transfer agreement. Instructions Access the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to prepare responses to the following items. (a) Identify relevant IFRSs that address transfers of receivables. (b) What are the objectives for reporting transfers of receivables? (c) Provide the definition for “Amortized cost.”

The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marks-and- Spencer-Annual-report-and-financial-statements-2012.pdf. Instructions Refer to M&S’s financial statements and the accompanying notes to answer the following questions. (a) What criteria does M&S use to classify “Cash and cash equivalents” as reported in its statement of financial position? (b) As of 31 March 2012, what balances did M&S have in cash and cash equivalents? What were the major uses of cash during the year? (c) What amounts related to trade receivables does M&S report? Does M&S have any past due but not impaired receivables?

Another example of anchoring is partial computation. Assume two different groups of people are given 5 seconds to find the product of eight numbers. The calculation is presented to the first group in ascending order (1 ´ 2 ´ 3 ´ 4 ´ 5 ´ 6 ´ 7 ´ 8) and to the second group in descending order (8 ´ 7 ´ 6 ´ 5 ´ 4 ´ 3 ´ 2 ´ 1). Which group do you think will give the most accurate answers? Explain your reasoning.

Of what use is the statement of cash flows?

Is deindustrialisation necessarily undesirable?

Ethical Decision-Making — Wasted Soup83 While she was watching operations at a food processing plant, a consultant noticed a large amount of soup on the floor under a filling machine. An operator washed this soup away each day. When asked about the loss of soup, the production manager replied that no losses occurred. In this manager’s view, no problem existed because the production line operating costs were below budgeted costs. Later, a productivity team analysed the amount of soup wasted over a given time period. The team estimated the cost of the leak to be $750 000 a year. To correct the problem, the company installed a set of valves costing $50 000. The new valves eliminated the loss of soup.   Instead of measuring performance against expected budget levels, managers could compare actual profits to ideal profits that could be earned if operations were to run at their true potential. By focusing on the gap between ideal and actual profits, managers are encouraged to identify lost profit potential and to reconsider critical processes. Once gaps are identified, managers rank them according to their value to the organisation and correct them in priority order.   Required (a)     Is it an ethical problem when employees observe inefficiencies in the workplace, such as the loss of soup in this case? Why? (b)     Why is it common for employees to do nothing when they observe inefficiencies? Compare the responsibility of operation workers to the responsibility of the operating manager with respect to identifying and correcting inefficiencies. In what ways are the responsibilities the same? In what ways are they different? (c)     Is it ethical for employees to ignore inefficiencies? Why? What values did you use to arrive at the conclusion? (d)     People do not always seek to achieve their best performance. For example, students sometimes apply minimum effort to achieve a targeted grade. What does it mean for individuals to seek continuous improvement? (LO2)

A stepper motor serves as the drive unit for the linear joint of an industrial robot. The joint must have an accuracy of 0.25 mm. The motor is attached to a leadscrew through a 2:1 gear reduction (2 turns of the motor for 1 turn of the leadscrew). The pitch of the leadscrew is 5.0 mm. The mechanical errors in the system (due to backlash of the leadscrew and the gear reducer) can be represented by a normal distribution with standard deviation = ±0.05 mm. Specify the number of step angles that the motor must have in order to meet the accuracy requirement.

Calculate price elasticity of demand between points n and l using the arc method. Does this give the same answer as by the point method? Would it if the demand curve were actually curved?

Claude purchased raw land three years ago for $1,500,000 to develop into lots and sell to individuals planning to build their dream homes. Claude intended to treat this property as inventory, like his other development properties. Before completing the development of the property, however, he decided to contribute it to South Peak Investors LLC when it was worth $2,500,000, in exchange for a 10 percent capital and profits interest. South Peak’s strategy is to hold land for investment purposes only and then sell it later at a gain. a. If South Peak sells the property for $3,000,000 four years after Claude’s contribution, how much gain or loss is recognized and what is its character? [Hint: See §724.] b. If South Peak sells the property for $3,000,000 five and one-half years after Claude’s contribution, how much gain or loss is recognized, and what is its character?

Assume you asked your favorite AI learning tool to do the following: “Describe the §1231 netting process” and the AI tool responded as follows:

Gheorghe Moresan Lumber Company handles three principal lines of merchandise with these varying rates of gross profit on cost. Lumber 25% Millwork 30% Hardware and fi ttings 40% On August 18, a fire destroyed the office, lumber shed, and a considerable portion of the lumber stacked in the yard. To file a report of loss for insurance purposes, the company must know what the inventories were immediately preceding the fire. No detail or perpetual inventory records of any kind were maintained. The only pertinent information you are able to obtain are the following facts from the general ledger, which was kept in a fireproof vault and thus escaped destruction. Lumber Millwork Hardware Inventory, Jan. 1, 2014 $ 250,000 $ 90,000 $ 45,000 Purchases to Aug. 18, 2014 1,500,000 375,000 160,000 Sales revenue to Aug. 18, 2014 2,080,000 533,000 210,000 Instructions Submit your estimate of the inventory amounts immediately preceding the fire.

Jobim Inc. had the following condensed balance sheet at the end of operations for 2013. JOBIM INC. BALANCE SHEET DECEMBER 31, 2013 Cash $ 8,500 Current liabilities $ 15,000 Current assets other than cash 29,000 Long-term notes payable 25,500 Investments 20,000 Bonds payable 25,000 Plant assets (net) 67,500 Capital stock 75,000 Land 40,000 Retained earnings 24,500 $165,000 $165,000 During 2014, the following occurred. 1. A tract of land was purchased for $9,000. 2. Bonds payable in the amount of $15,000 were redeemed at par. 3. An additional $10,000 in capital stock was issued at par. 4. Dividends totaling $9,375 were paid to stockholders. 5. Net income was $35,250 after allowing depreciation of $13,500. 6. Land was purchased through the issuance of $22,500 in bonds. 7. Jobim Inc. sold part of its investment portfolio for $12,875. This transaction resulted in a gain of $2,000 for the company. The company classifies the investments as available-for-sale. 8. Both current assets (other than cash) and current liabilities remained at the same amount. Instructions (a) Prepare a statement of cash flows for 2014 using the indirect method. (b) Prepare the condensed balance sheet for Jobim Inc. as it would appear at December 31, 2014.

List the three parts of a common twist drill. List the three parts of a common twist drill.

Maria has all of her stock in Mayan Corporation redeemed. Under what conditions will Maria treat the redemption as an exchange and recognize capital gain or loss?

: Describe some of the diversity challenges that managers face in the United States and globally.

1.    How might the teaching of a management course be designed to help people make the transition from individual performer to manager so as to prepare them for the challenges they will face as new managers?

Consider situations where you might consider swapping items with someone. Why are such situations relatively rare? Can you think of circumstances in which this might be more common?