Question & Answer

John Adams Company’s record of transactions for the month of April was as follows. Purchases Sales April 1 (balance on hand) 600 @ $ 6.00 April 3 500 @ $10.00 4 1,500 @ 6.08 9 1,400 @ 10.00 8 800 @ 6.40 11 600 @ 11.00 13 1,200 @ 6.50 23 1,200 @ 11.00 21 700 @ 6.60 27 900 @ 12.00 29 500 @ 6.79 4,600 5,300 Instructions (a) Assuming that periodic inventory records are kept in units only, compute the inventory at April 30 using (1) LIFO and (2) average-cost. (b) Assuming that perpetual inventory records are kept in dollars, determine the inventory using (1) FIFO and (2) LIFO. (c) Compute cost of goods sold assuming periodic inventory procedures and inventory priced at FIFO. (d) In an inflationary period, which inventory method—FIFO, LIFO, average-cost—will show the highest net income?

What are the implications of Regulation FD? (LO4)

Winston Industries and Ewing Inc. enter into an agreement that requires Ewing Inc. to build three diesel-electric engines to Winston’s specifications. Upon completion of the engines, Winston has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is noncancelable, becomes effective on January 1, 2014, and requires annual rental payments of $413,971 each January 1, starting January 1, 2014. Winston’s incremental borrowing rate is 10%. The implicit interest rate used by Ewing Inc. and known to Winston is 8%. The total cost of building the three engines is $2,600,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Winston depreciates similar equipment on a straight-line basis. At the end of the lease, Winston assumes title to the engines. Collectibility of the lease payments is reasonably certain; no uncertainties exist relative to unreimbursable lessor costs. Instructions (a) Discuss the nature of this lease transaction from the viewpoints of both lessee and lessor. (b) Prepare the journal entry or entries to record the transaction on January 1, 2014, on the books of Winston Industries. (c) Prepare the journal entry or entries to record the transaction on January 1, 2014, on the books of Ewing Inc. (d) Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2014. (e) Prepare the journal entries for both the lessee and lessor to record interest expense (revenue) at December 31, 2014. (Prepare a lease amortization schedule for 2 years.) (f) Show the items and amounts that would be reported on the balance sheet (not notes) at December 31, 2014, for both the lessee and the lessor.

Collecting overhead cost information A family member asked you to review the accounting system used for Hanna’s, a custom stained glass manufacturing business. The owner currently uses a software package to keep track of her bank account, but she does not produce financial statements. The owner seeks your help in setting up a costing system so that financial statements can be produced on a monthly basis.                           Required (a)     What kind of costing system is needed for this setting? (b)     You plan to categorise the banking data for entry into the financial statement records. List the categories you might use for these entries. List only broad categories here [see parts (c), (d), and (e) for more details.] (c)      List several costs that might be included in a fixed overhead category. (d)     List several costs that might be included in a variable overhead category. (e)      List several costs that might be included in direct materials. (f)      Write a memo to the owner discussing the alternative choices for the costing system. Include an explanation of the type of information that would need to be captured to support the costing system.

: Describe the practices of effective virtual teams and how these practices are implemented.

Explain how breakeven point would be affected under both absorption and variable costing.

Simon just received a 30-day letter from the IRS indicating a proposed assessment.  Does he have to pay the additional tax?  What are his options?

Sketch a person’s indifference map for two goods X and Y. Mark the optimum consumption point. Now illustrate the following (you might need to draw a separate diagram for each): (a)  A rise in the price of good X, but no change in the price of good Y. (b)  A shift in the person’s tastes from good Y to good X. (c)  A fall in the person’s income and a fall in the price of good Y, with the result that the consumption of Y remains constant (but that of X falls).

Presentations What is the purpose of the economic presentations made during a FOMC meeting? (LO2)

Recently, a group of university students decided to incorporate for the purposes of selling a process to recycle the waste product from manufacturing cheese. Some of the initial costs involved were legal fees and office expenses incurred in starting the business, state incorporation fees, and stamp taxes. One student wishes to charge these costs against revenue in the current period. Another wishes to defer these costs and amortize them in the future. Which student is correct?

What causes the various types of changes that occur in the altered layer just beneath the surface?

In terms of the broad definition of money, would a deposit account passbook count as money?

Archer Company issued $4,000,000 par value, 7% convertible bonds at 99 for cash. The net present value of the debt without the conversion feature is $3,800,000. Prepare the journal entry to record the issuance of the convertible bonds.

Why are revenue and expense accounts called temporary or nominal accounts?

Repeat the analysis undertaken in Figure 20.5 to consider the possible subsequent effects following a period of demand-pull deflation.

A department within a processing operation has some finished units physically on hand. Should they be counted as completed units or as ending inventory in the department? Explain.

What are the steps to be completed in preparing the opening IFRS statement of financial position?

Distinguish between proportional, progressive and regressive taxation. Could a progressive tax have a constant marginal rate?

List two factors that could affect managers’ choices for the number of times and points in processing to inspect units.

Prophet Company signed a long-term purchase contract to buy timber from the U.S. Forest Service at $300 per thousand board feet. Under these terms, Prophet must cut and pay $6,000,000 for this timber during the next year. Currently, the market value is $250 per thousand board feet. At this rate, the market price is $5,000,000. Jerry Herman, the controller, wants to recognize the loss in value on the year-end financial statements, but the financial vice president, Billie Hands, argues that the loss is temporary and should be ignored. Herman notes that market value has remained near $250 for many months, and he sees no sign of significant change. Instructions (a) What are the ethical issues, if any? (b) Is any particular stakeholder harmed by the financial vice president’s decision? (c) What should the controller do?

Contrast the cash-basis method and the accrual method of accounting for warranty costs.

Name some of the elements that have the greatest effect on the hardenability of steel.

Mogilny Company paid $135,000 for a machine. The Accumulated Depreciation—Equipment account has a balance of $46,500 at the present time. The company could sell the machine today for $150,000. The company president believes that the company has a “right to this gain.” What does the president mean by this statement? Do you agree?

Jamarcus, a full-time student, earned $2,500 this year from a summer job.  He had no other income this year and will have zero federal income tax liability this year.  His employer withheld $300 of federal income tax from his summer pay.  Is Jamarcus required to file a tax return?  Should Jamarcus file a tax return?

Late in 2011, Joan Seceda and four other investors took the chain of Becker Department Stores private, and the company has just completed its third year of operations under the ownership of the investment group. Andrea Selig, controller of Becker Department Stores, is in the process of preparing the year-end financial statements. Based on the preliminary financial statements, Seceda has expressed concern over inventory shortages, and she has asked Selig to determine whether an abnormal amount of theft and breakage has occurred. The accounting records of Becker Department Stores contain the following amounts on November 30, 2014, the end of the fiscal year. Cost Retail Beginning inventory $ 68,000 $100,000 Purchases 255,000 400,000 Net markups 50,000 Net markdowns 110,000 Sales revenue 320,000 According to the November 30, 2014, physical inventory, the actual inventory at retail is $115,000. Instructions (a) Describe the circumstances under which the retail inventory method would be applied and the advantages of using the retail inventory method. (b) Assuming that prices have been stable, calculate the value, at cost, of Becker Department Stores’ ending inventory using the last-in, first-out (LIFO) retail method. Be sure to furnish supporting calculations. (c) Estimate the amount of shortage, at retail, that has occurred at Becker Department Stores during the year ended November 30, 2014. (d) Complications in the retail method can be caused by such items as (1) freight-in costs, (2) purchase returns and allowances, (3) sales returns and allowances, and (4) employee discounts. Explain how each of these four special items is handled in the retail inventory method.