Question & Answer

What are the factors on which the selection of feed in a machining operation should be based?

Part 1: Capital leases and operating leases are the two classifications of leases described in FASB pronouncements from the standpoint of the lessee. Instructions (a) Describe how a capital lease would be accounted for by the lessee both at the inception of the lease and during the first year of the lease, assuming the lease transfers ownership of the property to the lessee by the end of the lease. (b) Describe how an operating lease would be accounted for by the lessee both at the inception of the lease and during the first year of the lease, assuming equal monthly payments are made by the lessee at the beginning of each month of the lease. Describe the change in accounting, if any, when rental payments are not made on a straight-line basis. Do not discuss the criteria for distinguishing between capital leases and operating leases. Part 2: Sales-type leases and direct-financing leases are two of the classifications of leases described in FASB pronouncements from the standpoint of the lessor. Instructions Compare and contrast a sales-type lease with a direct-financing lease as follows. (a) Lease receivable. (b) Recognition of interest revenue. (c) Manufacturer’s or dealer’s profit. Do not discuss the criteria for distinguishing between the leases described above and operating leases.

Name some of the principal bonding materials used in grinding wheels

Ken sold a rental property for $500,000. He received $100,000 in the current year and $100,000 each year for the next four years. Of the sales price, $400,000 was allocated to the building, and the remaining $100,000 was allocated to the land. Ken purchased the property several years ago for $300,000. When he initially purchased the property, he allocated $225,000 of the purchase price to the building and $75,000 to the land. Ken has claimed $25,000 of depreciation deductions over the years against the building. Ken had no other sales of §1231 or capital assets in the current year. For the year of the sale, determine Ken’s recognized gain or loss and the character of Ken’s gain, and calculate Ken’s tax due because of the sale (assuming his marginal ordinary tax rate is 32 percent). (Hint: See the examples in Reg. §1.453-12.)

An accountant must be familiar with the concepts involved in determining earnings of a business entity. The amount of earnings reported for a business entity is dependent on the proper recognition, in general, of revenues and expenses for a given time period. In some situations, costs are recognized as expenses at the time of product sale. In other situations, guidelines have been developed for recognizing costs as expenses or losses by other criteria. Instructions (a) Explain the rationale for recognizing costs as expenses at the time of product sale. (b) What is the rationale underlying the appropriateness of treating costs as expenses of a period instead of assigning the costs to an asset? Explain. (c) In what general circumstances would it be appropriate to treat a cost as an asset instead of as an expense? Explain. (d) Some expenses are assigned to specific accounting periods on the basis of systematic and rational allocation of asset cost. Explain the underlying rationale for recognizing expenses on the basis of systematic and rational allocation of asset cost. (e) Identify the conditions under which it would be appropriate to treat a cost as a loss.

Risk classification Regal Foods is a multi-divisional company operating in a range of locations around the globe. Its product-based divisions are: Ice Cream and Associated Dairy Products, Confectionery, Nutrition, and Prepared Food. Regal has total sales in excess of $10 billion. The CEO, Ruby Day, recently undertook a company review, which identified the following strategies and objectives: • optimising product performance through strong research and development, product innovation and market share growth • enhancing financial performance through financial discipline and targeted capital expenditure.   Divisional managers have traditionally been allowed significant autonomy in line with the decentralised divisional structure. CFO Paul Falkenberg has recently introduced relative performance evaluation (RPE) at the divisional level to promote competitiveness, with the objective of growing the company.   Ice Cream and Associated Dairy Products Division The Ice Cream and Associated Dairy Products Division focuses on such products as ice cream, yoghurt, milk and cheeses. The current divisional manager is Alette Rennie, who has been in the position for the past three years. In that time, Alette has achieved average annual divisional revenue growth of 6 per cent. However, there are concerns about some of the exposures the division has. For example in a recent email to the CFO and CEO, Alette expressed concerns about some of the division’s exposures to the agricultural industry, the increasing global competition in dairy products, and the lack of bargaining power of the company in the local milk price wars.   Nutrition Division The Nutrition Division focuses on health-related products. Historically, the Nutrition Division has been an excellent contributor to group performance, with annual growth rates of up to 12 per cent for the period 2006 to 2012, and revenues exceeding $2 billion. However, divisional manager Bruce Buncle has found it increasingly difficult to maintain growth. An increasingly crowded market for health and nutritional products seems to be the main driver of these difficulties. As a consequence, debt levels of the division seem to be rising. However, Buncle is conscious that he needs to develop new products and markets in line with company objectives.   Buncle and his management team have been considering a range of investment opportunities and have decided on a major investment in the bottled water industry. While the industry has its challenges (for example, environmental opposition to the use of plastic bottles, tightening environmental regulations and the expectation of reduced carbon emissions), Buncle and his management team see a lot of potential with such a strategic move. However, where significant capital expenditure is required, Buncle finds the company investment decision-making processes frustrating.   The management team within the Nutrition Division has identified a new spring water source in a regional area. The local authorities are in favour of the springs being used to supply the Nutrition Division with spring water for a new water bottling plant to be built in the region. In fact, the local authorities are willing to forgo local taxes and provide subsidies to Regal to ensure the plant is built. The region has experienced relatively high levels of unemployment in recent years and the new plant will generate some 100 local new jobs. While there is some local opposition to the new facility on environmental grounds, Buncle considers these to be manageable. While he knows the project’s financial benefit is mainly after the third year, he knows that the investment is a good strategic move for his division.   Required Using the risk classification framework (strategic, operational, legal and regulatory, and financial) identify the key risks to which Regal and its divisions are exposed. (LO6)

1.      Require that Rukman participants reveal their ties to the corporate marketing program right up front before they make a recommendation.

Bloom Corporation had the following 2014 income statement. Sales revenue $200,000 Cost of goods sold 120,000 Gross profi t 80,000 Operating expenses (includes depreciation of $21,000) 50,000 Net income $ 30,000 The following accounts increased during 2014: Accounts Receivable $12,000; Inventory $11,000; Accounts Payable $13,000. Prepare the cash flows from operating activities section of Bloom’s 2014 statement of cash flows using the direct method.

Explain the difference between roughing and finishing operations in machining.

Dustin has a contract to provide services to Dado Enterprises. In November of this year, Dustin billed Dado $10,000 for the services he rendered during the year. Dado is an accrual-method proprietorship that is owned and operated by Dustin’s father.  a) What amount of revenue must Dustin recognize this year if Dustin uses the cash method and Dado remits payment and Dustin receives payment for the services in December of this year? What amount can Dado deduct this year? b) What amount of revenue must Dustin recognize this year if Dustin uses the accrual method, and Dado remits payment for the services in December of this year? What amount can Dado deduct this year? c) What amount of revenue must Dustin recognize this year if Dustin uses the cash method and Dado remits payment for the services in January of next year? What amount can Dado deduct this year? d) What amount of revenue must Dustin recognize this year if Dustin uses the accrual method and Dado remits payment for the services in January of next year? What amount can Dado deduct this year?

The comparative balance sheets for Hinckley Corporation show the following information. December 31 2014 2013 Cash $ 33,500 $13,000 Accounts receivable 12,250 10,000 Inventory 12,000 9,000 Investments –0– 3,000 Buildings –0– 29,750 Equipment 45,000 20,000 Patents 5,000 6,250 $107,750 $91,000 Allowance for doubtful accounts $ 3,000 $ 4,500 Accumulated depreciation—equipment 2,000 4,500 Accumulated depreciation—building –0– 6,000 Accounts payable 5,000 3,000 Dividends payable –0– 5,000 Notes payable, short-term (nontrade) 3,000 4,000 Long-term notes payable 31,000 25,000 Common stock 43,000 33,000 Retained earnings 20,750 6,000 $107,750 $91,000 Additional data related to 2014 are as follows. 1. Equipment that had cost $11,000 and was 40% depreciated at time of disposal was sold for $2,500. 2. $10,000 of the long-term note payable was paid by issuing common stock. 3. Cash dividends paid were $5,000. 4. On January 1, 2014, the building was completely destroyed by a flood. Insurance proceeds on the building were $30,000 (net of $2,000 taxes). 5. Investments (available-for-sale) were sold at $1,700 above their cost. The company has made similar sales and investments in the past. 6. Cash was paid for the acquisition of equipment. 7. A long-term note for $16,000 was issued for the acquisition of equipment. 8. Interest of $2,000 and income taxes of $6,500 were paid in cash. Instructions Prepare a statement of cash flows using the indirect method. Flood damage is unusual and infrequent in that part of the country.

Everly Corporation acquires a coal mine at a cost of $400,000. Intangible development costs total $100,000. After extraction has occurred, Everly must restore the property (estimated fair value of the obligation is $80,000), after which it can be sold for $160,000. Everly estimates that 4,000 tons of coal can be extracted. If 700 tons are extracted the first year, prepare the journal entry to record depletion.

Susan (44 years old) is a highly successful architect and is covered by an employee-sponsored plan. Her husband, Dan (47 years old), however, is a Ph.D. student and is unemployed. Compute the maximum deductible IRA contribution for each spouse in the following alternative situations.

What is the dilemma between design and manufacturing in terms of mechanical properties?

As indicated in Section 23.4, the effect of a cutting fluid is to increase the value of C in the Taylor tool life equation. In a certain machining situation using HSS tooling, the C value is increased from C = 200 to C = 225 due to the use of the cutting fluid. The n value is the same with or without fluid at n = 0.125. Cutting speed used in the operation is v = 125 ft/min. Feed = 0.010 in/rev and depth = 0.100 in. The effect of the cutting fluid can be to either increase cutting speed (at the same tool life) or increase tool life (at the same cutting speed). (a) What is the cutting speed that would result from using the cutting fluid if tool life remains the same as with no fluid? (b) What is the tool life thatwould result if the cutting speed remained at 125 ft/min? (c) Economically, which effect is better, given that tooling cost = $2.00 per cutting edge, tool change time = 2.5 min, and operator and machine rate = $30/hr? Justify you answer with calculations, using cost per cubic in of metal machined as the criterion of comparison. Ignore effects of workpart handling time.

Rania contributed equipment worth $200,000, purchased 10 months ago for $250,000 cash and used in her sole proprietorship, to Sand Creek LLC in exchange for a 15 percent profits and capital interest in the LLC. Rania agreed to guarantee all $15,000 of Sand Creek’s accounts payable, but she did not guarantee any portion of the $100,000 nonrecourse mortgage securing Sand Creek’s office building. Other than the accounts payable and mortgage, Sand Creek does not have any liabilities to other creditors. a. What is Rania’s initial tax basis in her LLC interest? b. What is Rania’s holding period in her interest? c. What is Sand Creek’s initial basis in the contributed property? d. What is Sand Creek’s holding period in the contributed property?

If an entity has a mixed cost function, a 10 per cent increase in sales volume should increase income by more than 10 per cent. Explain why.

The following conditions and settings are used in a certain surface grinding operation: wheel diameter = 6.0 in, infeed = 0.003 in, wheel speed = 4750 ft/min, workspeed = 50 ft/min, and crossfeed = 0.20 in. The number of active grits per square inch of wheel surface = 500. Determine (a) average length per chip, (b) metal removal rate, and (c) number of chips formed per unit time for the portion of the operation when the wheel is engaged in the work.

Presented below is financial information for two different companies. Alatorre Company Eduardo Company Sales revenue $90,000 (d) Sales returns and allowances (a) $ 5,000 Net sales 81,000 95,000 Cost of goods sold 56,000 (e) Gross profi t (b) 38,000 Operating expenses 15,000 23,000 Net income (c) Instructions Compute the missing amounts.

Distinguish among Accounting Research Bulletins, Opinionsof the Accounting Principles Board, and Statementsof the Financial Accounting Standards Board.

An aluminum alloy is to be ground in an external cylindrical grinding operation to obtain a good surface finish. Specify the appropriate grinding wheel parameters and the grinding conditions for this job.

Under what circumstances can partners with passive losses from partnerships deduct their passive losses?

Ryan, Dahir, and Bill have operated Broken Feather LLC for the last four years using a calendar year-end. Each has a one-third interest. Since they began operating, their busy season has run from June through August, with 35 percent of their gross receipts coming in July and August. The members would like to change their tax year-end and have asked you to address the following questions: a. Can they change to an August 31 year-end and, if so, how do they make the change? [Hint: See Rev. Proc. 2002-38.] b. Can they change to a September 30 year-end and, if so, how do they make the change? [Hint: See §444.]

Use the information from BE17-1 but assume the bonds are purchased as an available-for-sale security. Prepare Garfield’s journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) The bonds have a year-end fair value of $75,500.

What are the two basic categories of cutting tools in machining? Give two examples of machining operations that use each of the tooling types