Question & Answer

What are the advantages and disadvantages of having an individual’s   remuneration linked to performance outcomes?             (LO4 and 5)

Van Hatten Industries has three operating divisions—Depp Construction Division, DeMent Publishing Division, and Ankiel Securities Division. Each division maintains its own accounting system and method of revenue recognition. Depp Construction Division During the fiscal year ended November 30, 2014, Depp Construction Division had one construction project in process. A $30,000,000 contract for construction of a civic center was granted on June 19, 2014, and construction began on August 1, 2014. Estimated costs of completion at the contract date were $25,000,000 over a 2-year time period from the date of the contract. On November 30, 2014, construction costs of $7,200,000 had been incurred and progress billings of $9,500,000 had been made. The construction costs to complete the remainder of the project were reviewed on November 30, 2014, and were estimated to amount to only $16,800,000 because of an expected decline in raw materials costs. Revenue recognition is based upon a percentage-of-completion method. DeMent Publishing Division The DeMent Publishing Division sells large volumes of novels to a few book distributors, which in turn sell to several national chains of bookstores. DeMent allows distributors to return up to 30% of sales, and distributors give the same terms to bookstores. While returns from individual titles fluctuate greatly, the returns from distributors have averaged 20% in each of the past 5 years. A total of $7,000,000 of paperback novel sales were made to distributors during fiscal 2014. On November 30, 2014 (the end of the fiscal year), $1,500,000 of fiscal 2014 sales were still subject to return privileges over the next 6 months. The remaining $5,500,000 of fiscal 2014 sales had actual returns of 21%. Sales from fiscal 2013 totaling $2,000,000 were collected in fiscal 2014 less 18% returns. This division records revenue according to the method referred to as revenue recognition when the right of return exists. Ankiel Securities Division Ankiel Securities Division works through manufacturers’ agents in various cities. Orders for alarm systems and down payments are forwarded from agents, and the division ships the goods f.o.b. factory directly to customers (usually police departments and security guard companies). Customers are billed directly for the balance due plus actual shipping costs. The company received orders for $6,000,000 of goods during the fiscal year ended November 30, 2014. Down payments of $600,000 were received, and $5,200,000 of goods were billed and shipped. Actual freight costs of $100,000 were also billed. Commissions of 10% on product price are paid to manufacturing agents after goods are shipped to customers. Such goods are warranted for 90 days after shipment, and warranty returns have been about 1% of sales. Revenue is recognized at the point of sale by this division. Instructions (a) There are a variety of methods of revenue recognition. Define and describe each of the following methods of revenue recognition, and indicate whether each is in accordance with generally accepted accounting principles. (1) Point of sale. (2) Completion-of-production. (3) Percentage-of-completion. (4) Installment-sales. (b) Compute the revenue to be recognized in fiscal year 2014 for each of the three operating divisions of Van Hatten Industries in accordance with generally accepted accounting principles.

Agassi Corporation is preparing the comparative financial statements to be included in the annual report to stockholders. Agassi employs a fiscal year ending May 31. Income from operations before income taxes for Agassi was $1,400,000 and $660,000, respectively, for fiscal years ended May 31, 2015 and 2014. Agassi experienced an extraordinary loss of $400,000 because of an earthquake on March 3, 2015. A 40% combined income tax rate pertains to any and all of Agassi Corporation’s profits, gains, and losses. Agassi’s capital structure consists of preferred stock and common stock. The company has not issued any convertible securities or warrants and there are no outstanding stock options. Agassi issued 40,000 shares of $100 par value, 6% cumulative preferred stock in 2011. All of this stock is outstanding, and no preferred dividends are in arrears. There were 1,000,000 shares of $1 par common stock outstanding on June 1, 2013. On September 1, 2013, Agassi sold an additional 400,000 shares of the common stock at $17 per share. Agassi distributed a 20% stock dividend on the common shares outstanding on December 1, 2014. These were the only common stock transactions during the past 2 fiscal years. Instructions (a) Determine the weighted-average number of common shares that would be used in computing earnings per share on the current comparative income statement for: (1) The year ended May 31, 2014. (2) The year ended May 31, 2015. (b) Starting with income from operations before income taxes, prepare a comparative income statement for the years ended May 31, 2015 and 2014. The statement will be part of Agassi Corporation’s annual report to stockholders and should include appropriate earnings per share presentation. (c) The capital structure of a corporation is the result of its past financing decisions. Furthermore, the earnings per share data presented on a corporation’s financial statements is dependent upon the capital structure. (1) Explain why Agassi Corporation is considered to have a simple capital structure. (2) Describe how earnings per share data would be presented for a corporation that has a complex capital structure.

In each of the following independent situations, determine the taxpayer’s filing status and the number of dependents the taxpayer is allowed to claim.

On January 1, 2014, Henderson Corporation redeemed $500,000 of bonds at 99. At the time of redemption, the unamortized premium was $15,000 and unamortized bond issue costs were $5,250. Prepare the corporation’s journal entry to record the reacquisition of the bonds.

Cost allocation has no impact on the transfer price set.  Discuss.

As a newly enrolled accounting major, you are anxious to better understand accounting institutions and sources of accounting literature. As a first step, you decide to explore the IASB’s Framework for the Preparation and Presentation of Financial Statements. Instructions Access the IASB Framework at the IASB website (http://eifrs.iasb.org/ ). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following items. (Provide paragraph citations.) (a) What is the objective of financial reporting? (b) What other means are there of communicating information, besides financial statements? (c) Indicate some of the users and the information they are most directly concerned with in economic decision-making.

If banks operated a rigid 5 per cent cash ratio and the government reduced the supply of cash by £1 million, how much must credit contract? What is the bank deposits multiplier?

What are the various forms of extruded shapes and corresponding dies?

During pouring into a sand mold, the molten metal can be poured into the downsprue at a constant flow rate during the time it takes to fill the mold. At the end of pouring the sprue is filled and there is negligible metal in the pouring cup. The downsprue is 6.0 in long. Its cross-sectional area at the top = 0.8 in2 and at the base = 0.6 in2 . The cross-sectional area of the runner leading from the sprue also = 0.6 in2 , and it is 8.0 in long before leading into the mold cavity, whose volume = 65 in3 . The volume of the riser located along the runner near the mold cavity = 25 in3 . It takes a total of 3.0 sec to fill the entire mold (including cavity, riser, runner, and sprue. This is more than the theoretical time required, indicating a loss of velocity due to friction in the sprue and runner. Find (a) the theoretical velocity and flow rate at the base of the downsprue; (b) the total volume of the mold; (c) the actual velocity and flow rate at the base of the sprue; and (d) the loss of head in the gating system due to friction.

Explain how liabilities of an LLC (taxed as a partnership) or an S corporation affect the amount of tax losses from the entity that limited liability company members and S corporation shareholders may deduct. Do the tax rules favor LLCs or S corporations?

Identify which basic assumption of accounting is best described in each item below. (a) The economic activities of FedEx Corporation are divided into 12-month periods for the purpose of issuing annual reports. (b) Solectron Corporation, Inc. does not adjust amounts in its financial statements for the effects of inflation. (c) Walgreen Co. reports current and noncurrent classifications in its balance sheet. (d) The economic activities of General Electric and its subsidiaries are merged for accounting and reporting purposes.

1. What price would the same piece of land sell for if it still earned £1000 rent per year, but if the rate of interest were now (a) 5 per cent; (b) 20 per cent? 2. What does this tell us about the relationship between the price of an asset (like land) and the rate of interest?

1.      : How might the state control the accuracy of principals who are conducting teacher evaluations? Explain.

Franklin Corp. has an investment that it has held for several years. When it purchased the investment, Franklin classified and accounted for it as available-for-sale. Can Franklin use the fair value option for this investment? Explain.

1.    You are a bright, hard-working, entry-level manager who fully intends to rise through the ranks. Your performance evaluation gives you high marks for your technical skills, but low marks when it comes to people skills. Do you think people skills can be learned, or do you need to rethink your career path? If people skills can be learned, how would you go about it?

High-speed machining (HSM) is being considered to produce the aluminum part in Problem 22.15. All cutting conditions remain the same except for the cutting speed and the type of insert used in the cutter. Assume the cutting speed will be at the limit given in Table 22.1. Determine (a) the new time to machine the part and (b) the new metal removal rate. (c) Is this part a good candidate for high-speed machining? Explain.

Is there a compromise between purely discretionary policy and adhering to strict targets?

1. If the government announced that it would, come what may, reduce the growth of money supply to zero next year, what (according to new classical economists) would happen? How might their answer be criticised? 2. For what reasons would a new classical economist support the policy of the Bank of England publishing its inflation forecasts and the minutes of the deliberations of the MPC?

Under what conditions should a provision be recorded?

One of the inspectors in the quality control department has frequently used the Brinell and Rockwell hardness tests, for which equipment is available in the company. He claims that all hardness tests are based on the same principle as the Brinell test, which is that hardness is always measured as the applied load divided by the area of the impressions made by an indentor. (a) Is he correct? (b) If not, what are some of the other principles involved in hardness testing, and what are the associated tests?

: Explain how factors such as creating an open communication climate, the choice of communication channels, candor, questions, and nonverbal communications influence the quality of communication.

Rock Creek LLC was recently formed with the following members: Name Tax Year-End Capital/Profits % Mark Banks December 31 35% Highball Properties LLC March 31 25% Chavez Builders Inc. November 30 40% What is the required taxable year-end for Rock Creek LLC?

What is an industrial robot?

Winsor Inc. recently purchased Holiday Corp., a large midwestern home painting corporation. One of the terms of the merger was that if Holiday’s income for 2014 was $110,000 or more, 10,000 additional shares would be issued to Holiday’s stockholders in 2015. Holiday’s income for 2013 was $120,000. Instructions (a) Would the contingent shares have to be considered in Winsor’s 2013 earnings per share computations? (b) Assume the same facts, except that the 10,000 shares are contingent on Holiday’s achieving a net income of $130,000 in 2014. Would the contingent shares have to be considered in Winsor’s earnings per share computations for 2013?