Question & Answer

Explain when a taxpayer will be subject to the 10 percent penalty when receiving distributions from a Roth IRA.

Under what conditions is it appropriate for a business to use the composite method of depreciation for its plant assets? What are the advantages and disadvantages of this method?

What is the primary objective of financial reporting?

Explain how the Securities and Exchange Commission attempts to prevent violations of SEC regulations. (LO4)

1. What effect will trade have on the price of capital in developing and developed countries? 2. It is sometimes claimed that trade with developing countries is unjust because it leads to the importation of goods produced at pitifully low wages. How can the Heckscher–Ohlin theory be used to refute this claim? Is there any validity in the claim? (see Box 24.3)

Penn Company was formed on July 1, 2012. It was authorized to issue 300,000 shares of $10 par value common stock and 100,000 shares of 8% $25 par value, cumulative and nonparticipating preferred stock. Penn Company has a July 1–June 30 fiscal year. The following information relates to the stockholders’ equity accounts of Penn Company. Common Stock Prior to the 2014–2015 fiscal year, Penn Company had 110,000 shares of outstanding common stock issued as follows. 1. 85,000 shares were issued for cash on July 1, 2012, at $31 per share. 2. On July 24, 2012, 5,000 shares were exchanged for a plot of land which cost the seller $70,000 in 2006 and had an estimated fair value of $220,000 on July 24, 2012. 3. 20,000 shares were issued on March 1, 2013, for $42 per share. During the 2014–2015 fiscal year, the following transactions regarding common stock took place. November 30, 2014 Penn purchased 2,000 shares of its own stock on the open market at $39 per share. Penn uses the cost method for treasury stock. December 15, 2014 Penn declared a 5% stock dividend for stockholders of record on January 15, 2015, to be issued on January 31, 2015. Penn was having a liquidity problem and could not afford a cash dividend at the time. Penn’s common stock was selling at $52 per share on December 15, 2014. June 20, 2015 Penn sold 500 shares of its own common stock that it had purchased on November 30, 2014, for $21,000. Preferred Stock Penn issued 40,000 shares of preferred stock at $44 per share on July 1, 2013. Cash Dividends Penn has followed a schedule of declaring cash dividends in December and June, with payment being made to stockholders of record in the following month. The cash dividends which have been declared since inception of the company through June 30, 2015, are shown below. Declaration Common Preferred Date Stock Stock 12/15/13 $0.30 per share $1.00 per share 6/15/14 $0.30 per share $1.00 per share 12/15/14 — $1.00 per share No cash dividends were declared during June 2015 due to the company’s liquidity problems. Retained Earnings As of June 30, 2014, Penn’s retained earnings account had a balance of $690,000. For the fiscal year ending June 30, 2015, Penn reported net income of $40,000. Instructions Prepare the stockholders’ equity section of the balance sheet, including appropriate notes, for Penn Company as of June 30, 2015, as it should appear in its annual report to the shareholders

A silicon boule is grown by the Czochralski process to a diameter of 5.25 in and a length of 5 ft. The seed and tang ends are cut off, reducing the effective length to 48.00 in. Assume that the seed and tang portions are conical in shape. The diameter is ground to 4.921 in (125 mm). A primary flat of width 1.625 in is ground on the surface the entire length of the ingot. The ingot is then sliced into wafers 0.025 in thick, using an abrasive saw blade whose thickness = 0.0128 in. Determine (a) the original volume of the boule, in3; (b) how many wafers are cut from it, assuming the entire 4 ft length can be sliced, and (c) what is the volumetric proportion of silicon in the starting boule that is wasted during processing?

On January 1, year 1, ABC Inc. issued 5,000 stock options with an estimated value of $10 per option. Each option entitles the owner to purchase one share of ABC stock for $25 a share (the per-share price of ABC stock on January 1, year 1). Assume the options vest on December 31, year 1, and that all 5,000 stock options were exercised on the vesting date when the stock was valued at $31 per share. Identify ABC’s tax deduction and book-tax difference associated with the stock options under the following alternative scenarios:

How do the economic policies of the major political parties differ? (If it is near an election you could refer to their manifestos.) How far can an economist go in assessing these policies?

A tensile test is carried out to determine the strength constant C and strain-rate sensitivity exponent m for a certain metal at 1000°F. At a strain rate = 10/sec, the stress is measured at 23,000 lb/in2 ; and at a strain rate = 300/sec, the stress = 45,000 lb/in2 . (a) Determine C and m. (b) If the temperature were 900°F, what changes would you expect in the values of C and m?

In an exchange of services, income has been received in the amount of the value of services received (gross income includes the receipt of services as well as money and goods).  Hence, Jim is taxed on the $275 of car repair services.  b.       The issue is whether the \"credit\" represents a valuable right.  Because the right could be redeemed for property worth $150, then under constructive receipt Jim should recognize income of $150.  c.       If a barter credit can only be redeemed for future services, then the taxpayer could argue that no realization has yet occurred.  But, it would be included in his gross income next year when the credit becomes a valuable right.   In an exchange of services, income has been received in the amount of the value of services received (gross income includes the receipt of services as well as money and goods).  Hence, Jim is taxed on the $275 of car repair services.  b.       The issue is whether the \"credit\" represents a valuable right.  Because the right could be redeemed for property worth $150, then under constructive receipt Jim should recognize income of $150.  c.       If a barter credit can only be redeemed for future services, then the taxpayer could argue that no realization has yet occurred.  But, it would be included in his gross income next year when the credit becomes a valuable right.

The management of Tritt Company has asked its accounting department to describe the effect upon the company’s financial position and its income statements of accounting for inventories on the LIFO rather than the FIFO basis during 2014 and 2015. The accounting department is to assume that the change to LIFO would have been effective on January 1, 2014, and that the initial LIFO base would have been the inventory value on December 31, 2013. Presented below are the company’s financial statements and other data for the years 2014 and 2015 when the FIFO method was employed. Financial Position as of 12/31/13 12/31/14 12/31/15 Cash $ 90,000 $130,000 $154,000 Accounts receivable 80,000 100,000 120,000 Inventory 120,000 140,000 176,000 Other assets 160,000 170,000 200,000 Total assets $450,000 $540,000 $650,000 Accounts payable $ 40,000 $ 60,000 $ 80,000 Other liabilities 70,000 80,000 110,000 Common stock 200,000 200,000 200,000 Retained earnings 140,000 200,000 260,000 Total liabilities and equity $450,000 $540,000 $650,000 Income for Years Ended 12/31/14 12/31/15 Sales revenue $900,000 $1,350,000 Less: Cost of goods sold 505,000 756,000 Other expenses 205,000 304,000 710,000 1,060,000 Income before income taxes 190,000 290,000 Income taxes (40%) 76,000 116,000 Net income $114,000 $ 174,000 Other data: 1. Inventory on hand at December 31, 2013, consisted of 40,000 units valued at $3.00 each. 2. Sales (all units sold at the same price in a given year): 2014—150,000 units @ $6.00 each 2015—180,000 units @ $7.50 each 3. Purchases (all units purchased at the same price in given year): 2014—150,000 units @ $3.50 each 2015—180,000 units @ $4.40 each 4. Income taxes at the effective rate of 40% are paid on December 31 each year. Instructions Name the account(s) presented in the financial statements that would have different amounts for 2015 if LIFO rather than FIFO had been used, and state the new amount for each account that is named. Show computations.

Lindsey Hunter Corporation is authorized to issue 50,000 shares of $5 par value common stock. During 2014, Lindsey Hunter took part in the following selected transactions. 1. Issued 5,000 shares of stock at $45 per share, less costs related to the issuance of the stock totaling $7,000. 2. Issued 1,000 shares of stock for land appraised at $50,000. The stock was actively traded on a national stock exchange at approximately $46 per share on the date of issuance. 3. Purchased 500 shares of treasury stock at $43 per share. The treasury shares purchased were issued in 2010 at $40 per share. Instructions (a) Prepare the journal entry to record item 1. (b) Prepare the journal entry to record item 2. (c) Prepare the journal entry to record item 3 using the cost method.

How might a company obtain a price index in order to apply dollar-value LIFO?

Rory and Nicholi, single taxpayers, each annually receives Social Security benefits of $15,000. Rory’s taxable income from sources other than Social Security exceeds $200,000. In contrast, the Social Security benefits are Nicholi’s only source of income. What percentage of the Social Security benefits must Rory include in his gross income? What percentage of Social Security benefits is Nicholi required to include in his gross income?

What method(s) might be used in the accounts to record a loss due to a price decline in the inventories? Discuss.

For the following application, identify one or more nontraditional machining processes that might be used, and present arguments to support your selection. Assume that either the part geometry or the work material (or both) preclude the use of conventional machining. The application is a matrix of 0.1 mm (0.004 in) diameter holes in a plate of 3.2 mm (0.125 in) thick hardened tool steel. The matrix is rectangular, 75 by 125 mm (3.0 by 5.0 in) with the separation between holes in each direction = 1.6 mm ( 0.0625 in).

1.    : If you are the CEO of a global company, how might you determine whether a globalization, multidomestic, or glocalization strategy would work best for your enterprise? What factors would influence your decision?

Explain why the credit crisis caused concerns about systemic risk. (LO5)

Explain the term sales mix in your own words. How does sales mix affect the contribution margin?

Why might the Fed want to focus its efforts on reducing long-term interest rates rather than short-term interest rates during a weak economy? Explain how it might use a monetary policy focused on influencing long-term interest rates. Why might such a policy also affect short-term interest rates in the same direction? (LO2)

Explain the use of a sinking-fund provision. How can it reduce the investor’s risk? (LO2)

Plant assets often require expenditures subsequent to acquisition. It is important that they be accounted for properly. Any errors will affect both the balance sheets and income statements for a number of years. Instructions For each of the following items, indicate whether the expenditure should be capitalized (C) or expensed (E) in the period incurred. (a) __________ Improvement. (b) __________ Replacement of a minor broken part on a machine. (c) __________ Expenditure that increases the useful life of an existing asset. (d) __________ Expenditure that increases the efficiency and effectiveness of a productive asset but does not increase its salvage value. (e) __________ Expenditure that increases the efficiency and effectiveness of a productive asset and increases the asset’s salvage value. (f) __________ Expenditure that increases the quality of the output of the productive asset. (g) __________ Improvement to a machine that increased its fair market value and its productioncapacity by 30% without extending the machine’s useful life. (h) __________ Ordinary repairs.

What are the relative advantages and disadvantages of mechanical presses versus hydraulic presses in sheet metalworking?

Markus Company purchases supplies from France once a year. Would Markus be favorably affected if it establishes a currency swap arrangement and the dollar strengthens? What if it establishes a currency swap arrangement and the dollar weakens? (LO8)