Question & Answer

Explain how the Fed’s monetary policy could depend on the fiscal policy that is implemented. (LO4)

What abrasive material would one select for grinding a cemented carbide cutting tool?

What are the potential tax consequences to a shareholder who participates in a stock redemption?

Describe stablecoins and explain how they differ from bitcoins. (LO3)

: Explain disruptive innovation and the ambidextrous approach as possible responses to the forces that drive innovation and change in today’s organizations.

How would a financial institution with a large bond portfolio be affected by falling interest rates? Would it be affected by a greater extent than a financial institution with a greater concentration of bonds (and fewer short-term securities)? Explain. (LO1)

In 2010 the number of air passengers using UK airports fell by 3.4 per cent compared with 2009. In 2015, passengers were 5.5 per cent up compared with 2014. Can we deduce anything about people’s attitude to the environment and their behaviour from these data?

Briefly describe the Glass-Steagall Act, and then explain how the related regulations have changed since it was enacted. (LO2)

The conventional retail inventory method yields results that are essentially the same as those yielded by the lowerof- cost-or-market method. Explain. Prepare an illustration of how the retail inventory method reduces inventory to market.

Assuming the same facts as those in E6-18 except that the payments must begin now and be made on the first day of each of the 15 years, what payment method would you recommend?

How have growth rates varied over the decades? Does the answer vary by country?

Describe how the interaction between buyers and sellers affects the market value of a firm and explain how that value can subject a firm to the market for corporate control. (LO6)

What are some of the advantages of the closed mold processes for PMCs relative to open mold processes?

Assume you asked your favorite AI learning tool “Does someone who is married have the option to file using the head of household filing status?” and the AI tool responded as follows:

Brecker Inc., a greeting card company, had the following statements prepared as of December 31, 2014. BRECKER INC. COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2014 AND 2013 12/31/14 12/31/13 Cash $ 6,000 $ 7,000 Accounts receivable 62,000 51,000 Short-term investments (available-for-sale) 35,000 18,000 Inventory 40,000 60,000 Prepaid rent 5,000 4,000 Equipment 154,000 130,000 Accumulated depreciation—equipment (35,000) (25,000) Copyrights 46,000 50,000 Total assets $313,000 $295,000 Accounts payable $ 46,000 $ 40,000 Income taxes payable 4,000 6,000 Salaries and wages payable 8,000 4,000 Short-term loans payable 8,000 10,000 Long-term loans payable 60,000 69,000 Common stock, $10 par 100,000 100,000 Contributed capital, common stock 30,000 30,000 Retained earnings 57,000 36,000 Total liabilities and stockholders’ equity $313,000 $295,000 BRECKER INC. INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2014 Sales revenue $338,150 Cost of goods sold 175,000 Gross profi t 163,150 Operating expenses 120,000 Operating income 43,150 Interest expense $11,400 Gain on sale of equipment 2,000 9,400 Income before tax 33,750 Income tax expense 6,750 Net income $ 27,000 Additional information: 1. Dividends in the amount of $6,000 were declared and paid during 2014. 2. Depreciation expense and amortization expense are included in operating expenses. 3. No unrealized gains or losses have occurred on the investments during the year. 4. Equipment that had a cost of $20,000 and was 70% depreciated was sold during 2014. Instructions Prepare a statement of cash flows using the direct method. (Do not prepare a reconciliation schedule.)

Why do banks invest in securities even though loans typically generate a higher return? Explain how a bank decides the appropriate percentage of funds that should be allocated to each type of asset. (LO3)

In 2014, Wild Corporation reported a net loss of $70,000. Wild’s only net income adjustments were depreciation expense $81,000, and increase in accounts receivable $8,100. Compute Wild’s net cash provided (used) by operating activities.

If firms believe the aggregate supply curve to be relatively elastic, what effect will this belief have on the outcome of an increase in aggregate demand?

Explain the government’s dilemma regarding whether it should rescue American International Group (AIG) during the credit crisis. (LO5)

What are the four most common elements in the earth's crust?

Why can expectations of an acquisition affect the value of the target’s stock? (LO3)

Mathys Inc. has recently hired a new independent auditor, Karen Ogleby, who says she wants “to get everything straightened out.” Consequently, she has proposed the following accounting changes in connection with Mathys Inc.’s 2014 financial statements. 1. At December 31, 2013, the client had a receivable of $820,000 from Hendricks Inc. on its balance sheet. Hendricks Inc. has gone bankrupt, and no recovery is expected. The client proposes to write off the receivable as a prior period item. 2. The client proposes the following changes in depreciation policies. (a) For office furniture and fixtures, it proposes to change from a 10-year useful life to an 8-year life. If this change had been made in prior years, retained earnings at December 31, 2013, would have been $250,000 less. The effect of the change on 2014 income alone is a reduction of $60,000. (b) For its new equipment in the leasing division, the client proposes to adopt the sum-of-theyears’- digits depreciation method. The client had never used SYD before. The first year the client operated a leasing division was 2014. If straight-line depreciation were used, 2014 income would be $110,000 greater. 3. In preparing its 2013 statements, one of the client’s bookkeepers overstated ending inventory by $235,000 because of a mathematical error. The client proposes to treat this item as a prior period adjustment. 4. In the past, the client has spread preproduction costs in its furniture division over 5 years. Because its latest furniture is of the “fad” type, it appears that the largest volume of sales will occur during the first 2 years after introduction. Consequently, the client proposes to amortize preproduction costs on a per-unit basis, which will result in expensing most of such costs during the first 2 years after the furniture’s introduction. If the new accounting method had been used prior to 2014, retained earnings at December 31, 2013, would have been $375,000 less. 5. For the nursery division, the client proposes to switch from FIFO to LIFO inventories because it believes that LIFO will provide a better matching of current costs with revenues. The effect of making this change on 2014 earnings will be an increase of $320,000. The client says that the effect of the change on December 31, 2013, retained earnings cannot be determined. 6. To achieve an appropriate recognition of revenues and expenses in its building construction division, the client proposes to switch from the completed-contract method of accounting to the percentage-of-completion method. Had the percentage-of-completion method been employed in all prior years, retained earnings at December 31, 2013, would have been $1,075,000 greater. Instructions (a) For each of the changes described above, decide whether: (1) The change involves an accounting principle, accounting estimate, or correction of an error. (2) Restatement of opening retained earnings is required. (b) What would be the proper adjustment to the December 31, 2013, retained earnings?

The following amortization and interest schedule reflects the issuance of 10-year bonds by Capulet Corporation on January 1, 2008, and the subsequent interest payments and charges. The company’s year-end is December 31, and financial statements are prepared once yearly.BLEMS Amortization Schedule Amount Carrying Year Cash Interest Unamortized Value 1/1/2008 $5,651 $ 94,349 2008 $11,000 $11,322 5,329 94,671 2009 11,000 11,361 4,968 95,032 2010 11,000 11,404 4,564 95,436 2011 11,000 11,452 4,112 95,888 2012 11,000 11,507 3,605 96,395 2013 11,000 11,567 3,038 96,962 2014 11,000 11,635 2,403 97,597 2015 11,000 11,712 1,691 98,309 2016 11,000 11,797 894 99,106 2017 11,000 11,894 100,000 Instructions (a) Indicate whether the bonds were issued at a premium or a discount and how you can determine this fact from the schedule. (b) Indicate whether the amortization schedule is based on the straight-line method or the effectiveinterest method, and how you can determine which method is used. (c) Determine the stated interest rate and the effective-interest rate. (d) On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2008. (e) On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2008. (Interest is paid January 1.) (f) On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2015. Capulet Corporation does not use reversing entries.

Suppose you asked your favorite AI query tool the following question: “How do the tax laws treat family members for purposes of limiting the number of owners an S corporation may have?”  The AI tool provided the following response:

At December 31, 2014, Ashley Co. has outstanding purchase commitments for 150,000 gallons, at $6.20 per gallon, of a raw material to be used in its manufacturing process. The company prices its raw material inventory at cost or market, whichever is lower. Assuming that the market price as of December 31, 2014, is $5.90, how would you treat this situation in the accounts?