Question & Answer

Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes. Instructions For each item below, indicate whether it involves: (1) A temporary difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred income tax asset. (2) A temporary difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred income tax liability. (3) A permanent difference. Use the appropriate number to indicate your answer for each. (a) ______ The MACRS depreciation system is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes for some plant assets. (b) ______ A landlord collects some rents in advance. Rents received are taxable in the period when they are received. (c) ______ Expenses are incurred in obtaining tax-exempt income. (d) ______ Costs of guarantees and warranties are estimated and accrued for financial reporting purposes. (e) ______ Installment sales of investments are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes. (f) ______ For some assets, straight-line depreciation is used for both financial reporting purposes and tax purposes but the assets’ lives are shorter for tax purposes. (g) ______ Interest is received on an investment in tax-exempt municipal obligations. (h) ______ Proceeds are received from a life insurance company because of the death of a key officer. (The company carries a policy on key officers.) (i) ______ The tax return reports a deduction for 80% of the dividends received from U.S. corporations. The cost method is used in accounting for the related investments for financial reporting purposes. (j) ______ Estimated losses on pending lawsuits and claims are accrued for books. These losses are tax deductible in the period(s) when the related liabilities are settled. (k) ______ Expenses on stock options are accrued for financial reporting purposes.

1. Assume that you wanted the following information. In which cases could you (i) buy perfect information, (ii) buy imperfect information, (iii) be able to obtain information without paying for it, (iv) not be able to obtain information? (a)  Which washing machine is the most reliable? (b)  Which of two vacant jobs is more satisfying? (c)  Which builder will repair my roof most cheaply? (d)  Which builder is best value for money? (e)  How big a mortgage would it be wise for me to take out? (f)   Should I take a degree or get a full-time job? (g)  What brand of washing powder washes whiter? (h)  Will a house need any work done on it over the next few years? In which cases are there non-monetary costs to you of finding out the information? How can you know whether the information you acquire is accurate or not? 2. Make a list of pieces of information a firm might want to know, and consider whether it could buy the information and how reliable that information might be. 3. What has been the impact of the Internet on the provision of information?

Grinding creates high temperatures. How is temperature harmful in grinding?

For the following taxpayers, determine if they are required to file a tax return in 2024.

How can the use of absorption costing lead managers to make dysfunctional decisions for the entity?

What is a bond indenture? What is the function of a trustee with respect to the bond indenture? (LO2)

Shonen Knife Corporation has elected to use the fair value option for one of its notes payable. The note was issued at an effective rate of 11% and has a carrying value of $16,000. At year-end, Shonen Knife’s borrowing rate has declined; the fair value of the note payable is now $17,500. (a) Determine the unrealized holding gain or loss on the note. (b) Prepare the entry to record any unrealized holding gain or loss.

Environmental decision making — Environment Aotearoa and ‘dirty dairying’ in New Zealand In October 2015, Statistics New Zealand published the first comprehensive and independent report on the state of the country’s environment. This provided information on five ‘domains’ — air, atmosphere and climate, fresh water, land, and marine. The report was the first in a three-yearly cycle that reports on one domain every six months and provides a combined, comprehensive picture once every three years.   At the time of its release the Minister for Statistics, Craig Foss, stated:   This is the first comprehensive report on New Zealand’s environment produced by Statistics New Zealand. It puts into practice the maxim that you manage what you measure. Robust, independent financial reporting has helped achieve significant improvements in New Zealand’s financial management and our ambition is to achieve the same for the environment.   Similarly, the Minister for the Environment, Nick Smith, explained:   New Zealand’s environment is so important to our quality of life, our successful exporting industries and our nation’s brand that we need robust, independent reporting. It enables us to know where we match up, what areas need more attention, and helps us figure out what we need to do about problem areas.   As the country’s population increases, its economy develops and lifestyles change, pressures on its natural resources grow. For example, there have been longstanding issues associated with dairy farming polluting rivers, referred to as ‘dirty dairying’, with at least 151 prosecutions over a four-year period from July 2008 to June 2012 involving 300 charges for unlawful discharges of dairy effluent.70 Regular and independent monitoring of the state of those resources is a first and vital step towards stopping, and hopefully reversing, further degradation.   (a) With the use of online data, search for evidence that the dairy industry in New Zealand is working to prevent ‘dirty dairying’. (b) Is it possible for you to know the conditions under which the products you purchase are produced? Why? (c) Is it possible for managers of a dairy cooperative, such as Fonterra, to know with certainty that their outsource partners comply with agreed-upon working conditions? Why? (LO1 and 2)

Four products are to be manufactured in Department A, and it is desired to determine how to allocate resources in that department to meet the required demand for these products for a certain week. For product 1, demand = 750/wk, setup time = 6 hr, and operation time = 4.0 min. For product 2, demand = 900/wk, setup time = 5 hr, and operation time = 3.0 min. For product 3, demand = 400/wk, setup time = 7 hr, and operation time = 2.0 min. For product 4, demand = 400/wk, setup time = 6 hr, and operation time = 3.0 min. The plant normally operates one shift (7.0 hours per shift), five days per week and there are currently 3 work centers in the department. Propose a way of scheduling the machines to meet the weekly demand.

1.    : Consider the leadership position of a senior partner in a law firm. What task, subordinate, and organizational factors might serve as substitutes for leadership in this situation?

Why is the relationship between interest rates and bond prices important to financial institutions? (LO1)

At what time is it proper to recognize income in the following cases: (a) Installment sales with no reasonable basis for estimating the degree of collectibility? (b) Sales for future delivery? (c) Merchandise shipped on consignment? (d) Profit on incomplete construction contracts? (e) Subscriptions to publications?

Explain the liquidity premium theory. (LO3)

Leppard Corporation sells DVD players. The corporation also offers its customers a 2-year warranty contract. During 2014, Leppard sold 20,000 warranty contracts at $99 each. The corporation spent $180,000 servicing warranties during 2014, and it estimates that an additional $900,000 will be spent in the future to service the warranties. Prepare Leppard’s journal entries for (a) the sale of contracts, (b) the cost of servicing the warranties, and (c) the recognition of warranty revenue. Assume the service costs are inventory costs.

Cordero Corporation has an employee stock-purchase plan which permits all full-time employees to purchase 10 shares of common stock on the third anniversary of their employment and an additional 15 shares on each subsequent anniversary date. The purchase price is set at the market price on the date purchased and no commission is charged. Discuss whether this plan would be consideredcompensatory.

What is stretch forming?

Describe the ways in which the timing strategy has limitations.

An extruder has a barrel diameter of 3.5 in and a length of 5.0 ft. It has a screw channel depth of 0.16 in and a flight angle of 22°. The extruder screw rotates at 75 rev/min. The polymer melt has a shear viscosity = 65 x 10-4 lb-sec/in2 at the operating temperature of 525°F. The specific gravity of the polymer is 1.2 and its tensile strength is 8000 lb/in0.11 lb/sec. The density of water is 62.5 lb/ft3 . (a) Find the equation for the extruder characteristic. (b) Find the operating point (Q and p), and (c) the die characteristic that is indicated by the operating point . A T-shaped cross section is extruded at a rate of

Explain how foreign stock exchanges have reduced transactions costs. (LO2, LO5)

A cylindrical workpart has a diameter = 2.5 in and a height = 4.0 in. It is upset forged to a height =2.75 in. Coefficient of friction at the die-work interface = 0.10. The work material has a flow curve with strength coefficient = 25,000 lb/in2 and strain hardening exponent = 0.22. Determine the plot of force vs. work height. Use of a spreadsheet calculator is recommended.

Kennedy Company has the following portfolio of available-for-sale securities at December 31, 2014. Percent Per Share Security Quantity Interest Cost Price Frank, Inc. 2,000 shares 8% $11 $16 Ellis Corp. 5,000 shares 14% 23 19 Mendota Company 4,000 shares 2% 31 24 Instructions (a) What should be reported on Kennedy’s December 31, 2014, balance sheet relative to these long-term available-for-sale securities? On December 31, 2015, Kennedy’s portfolio of available-for-sale securities consisted of the following common stocks. Percent Per Share Security Quantity Interest Cost Price Ellis Corp. 5,000 shares 14% $23 $28 Mendota Company 4,000 shares 2% 31 23 Mendota Company 2,000 shares 1% 25 23 At the end of 2015, Kennedy Company changed its intent relative to its investment in Frank, Inc. and reclassified the shares to trading securities status when the shares were selling for $8 per share. (b) What should be reported on the face of Kennedy’s December 31, 2015, balance sheet relative to available-for-sale securities investments? What should be reported to reflect the transactions above in Kennedy’s 2015 income statement?

Is there any truth in the saying that the price of a good is a reflection of its quality?

Direct and indirect costs; fixed, variable, and mixed costs Your sister turned her hobby into a small business called Glazed Over. She is a potter and manufactures and sells bowls that can be used for decoration or for birdbaths. She has one employee who works 40 hours a week no matter how many bowls are made. She has asked your advice in developing a cost function for the bowls so that she can estimate costs for the next period.   Required The following list of costs comes from your sister’s general ledger. Assume the cost object is an individual unit (i.e. bowl). Categorise each cost as direct or indirect (D or I), and as fixed, variable or mixed (F, V or M). (a) Employee wages (b) Clay used to make bowls (c) Depreciation on the kilns (d) Glaze (the finish painted on the bowls) (e) Brushes for the glaze (f) Electricity (g) Business licence (h) Advertising (i) Pottery studio maintenance (cost of weekly cleaning service) (j) Packing materials for the bowls

Fong Sai-Yuk Company sells one product. Presented below is information for January for Fong Sai-Yuk Company. Jan. 1 Inventory 100 units at $5 each 4 Sale 80 units at $8 each 11 Purchase 150 units at $6 each 13 Sale 120 units at $8.75 each 20 Purchase 160 units at $7 each 27 Sale 100 units at $9 each Fong Sai-Yuk uses the FIFO cost flow assumption. All purchases and sales are on account. Instructions (a) Assume Fong Sai-Yuk uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record cost of goods sold. A physical count indicates that the ending inventory for January is 110 units. (b) Compute gross profit using the periodic system. (c) Assume Fong Sai-Yuk uses a perpetual system. Prepare all necessary journal entries. (d) Compute gross profit using the perpetual system.

How is antidilution determined when multiple securities are involved?