Question & Answer

Explain how convertible securities are determined to be potentially dilutive common shares and how those convertible securities that are not considered to be potentially dilutive common shares enter into the determination of earnings per share data.

Why does the tax code allow taxpayers to defer gains on like-kind exchanges?  How do the tax laws ensure that the gains (or losses) are deferred and not permanently excluded from a taxpayer’s income?

Compare and contrast a retail CD and a negotiable CD. (LO2)

As audit partner for Grupo and Rijo, you are in charge of reviewing the classification of unusual items that have occurred during the current year. The following material items have come to your attention. 1. A merchandising company incorrectly overstated its ending inventory 2 years ago. Inventory for all other periods is correctly computed. 2. An automobile dealer sells for $137,000 an extremely rare 1930 S type Invicta which it purchased for $21,000 10 years ago. The Invicta is the only such display item the dealer owns. 3. A drilling company during the current year extended the estimated useful life of certain drilling equipment from 9 to 15 years. As a result, depreciation for the current year was materially lowered. 4. A retail outlet changed its computation for bad debt expense from 1% to ½ of 1% of sales because of changes in its customer clientele. 5. A mining concern sells a foreign subsidiary engaged in uranium mining, although it (the seller) continues to engage in uranium mining in other countries. 6. A steel company changes from the average-cost method to the FIFO method for inventory costing purposes. 7. A construction company, at great expense, prepared a major proposal for a government loan. The loan is not approved. 8. A water pump manufacturer has had large losses resulting from a strike by its employees early in the year. 9. Depreciation for a prior period was incorrectly understated by $950,000. The error was discovered in the current year. 10. A large sheep rancher suffered a major loss because the state required that all sheep in the state be killed to halt the spread of a rare disease. Such a situation has not occurred in the state for 20 years. 11. A food distributor that sells wholesale to supermarket chains and to fast-food restaurants (two distinguishable classes of customers) decides to discontinue the division that sells to one of the two classes of customers. Instructions From the foregoing information, indicate in what section of the income statement or retained earnings statement these items should be classified. Provide a brief rationale for your position.

Explain how equilibrium would be restored in the circular flow of income if there were a fall in investment.

Why do ratings agencies assign ratings to commercial paper? (LO1)

Dewey is a lawyer who uses the cash method of accounting.  Last year Dewey provided a client with legal services worth $55,000, but the client could not pay the fee.  This year Dewey requested that in lieu of paying Dewey $55,000 for the services, the client could make a $45,000 gift to Dewey’s daughter.  Dewey’s daughter received the check for $45,000 and deposited it in her bank account.  How much of this income is taxed, if any, to Dewey?  Explain.

In a book named Treasure, the reader has to figure out where a 2.2 pound, 24 kt gold horse has been buried. If the horse is found, a prize of $25,000 a year for 20 years is provided. The actual cost to the publisher to purchase an annuity to pay for the prize is $245,000. What interest rate (to the nearest percent) was used to determine the amount of the annuity? (Assume end-of-year payments.)

What is a stud (in the context of threaded fasteners)?

Bowling Green Savings & Loan uses shortterm deposits to fund fixed-rate mortgages. Explain how Bowling Green can use interest rate swaps to hedge its interest rate risk. (LO1)

Is it a valid criticism of perfect competition to argue that it is incompatible with economies of scale?

Shannon, Inc., changed from the LIFO cost flow assumption to the FIFO cost flow assumption in 2014. The increase in the prior year’s income before taxes is $1,200,000. The tax rate is 40%. Prepare Shannon’s 2014 journal entry to record the change in accounting principle.

1.       : Why do you think workplace stress is skyrocketing? Do you think it is a trend that will continue? Explain the reasons for your answer.

Assume that there are several chemical firms in an industry, each one producing different levels of an effluent, whose damage to the environment depends on the location of the firm. Compare the relative merits of using green taxes, tradable permits and controls as means of achieving the socially optimum levels of effluent from these firms.

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)

1.      : Prepare a memo to Taandil summarizing the new safety guidelines that affect the Lion Cub product line and requesting his authorization for implementation.

Given that crystal yield = 55%, crystal-to-slice yield = 60%, wafer yield = 75%, multiprobe yield = 65%, and final test yield = 95%, if a starting boule weighs 125 kg, what is the final weight of silicon that is represented by the non-defective chips after final test?

Where can authoritative IFRS related to the statement of cash flows be found?

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

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?

The executive officers of Rouse Corporation have a performance-based compensation plan. The performance criteria of this plan is linked to growth in earnings per share. When annual EPS growth is 12%, the Rouse executives earn 100% of the shares; if growth is 16%, they earn 125%. If EPS growth is lower than 8%, the executives receive no additional compensation. In 2014, Joan Devers, the controller of Rouse, reviews year-end estimates of bad debt expense and warranty expense. She calculates the EPS growth at 15%. Kurt Adkins, a member of the executive group, remarks over lunch one day that the estimate of bad debt expense might be decreased, increasing EPS growth to 16.1%. Devers is not sure she should do this because she believes that the current estimate of bad debts is sound. On the other hand, she recognizes that a great deal of subjectivity is involved in the computation. Instructions Answer the following questions. (a) What, if any, is the ethical dilemma for Devers? (b) Should Devers’s knowledge of the compensation plan be a factor that influences her estimate? (c) How should Devers respond to Adkins’s request?

What is wire drawing and bar drawing?

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?

1.      :  What does nice mean to you? Is being considered nice a good trait for managers to have or is it the kiss of death?