Question & Answer

Under what circumstances will managers want sensitivity analysis results relating to a CVP analysis?

Wire stock of initial diameter = 0.125 in is drawn through two dies each providing a 0.20 area reduction. The starting metal has a strength coefficient = 40,000 lb/in2 and a strain hardening exponent = 0.15. Each die has an entrance angle of 12°, and the coefficient of friction at the work-die interface is estimated to be 0.10. The motors driving the capstans at the die exits can each deliver 1.50 hp at 90% efficiency. Determine the maximum possible speed of the wire as it exits the second die.

Assume that on January 1, 2014, Kimberly-Clark Corp. signs a 10-year noncancelable lease agreement to lease a storage building from Sheffield Storage Company. The following information pertains to this lease agreement. 1. The agreement requires equal rental payments of $72,000 beginning on January 1, 2014. 2. The fair value of the building on January 1, 2014 is $440,000. 3. The building has an estimated economic life of 12 years, with an unguaranteed residual value of $10,000. Kimberly-Clark depreciates similar buildings on the straight-line method. 4. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor. 5. Kimberly-Clark’s incremental borrowing rate is 12% per year. The lessor’s implicit rate is not known by Kimberly-Clark. 6. The yearly rental payment includes $2,471 of executory costs related to taxes on the property. Instructions Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2014 and 2015. Kimberly-Clark’s corporate year-end is December 31.

What are the major characteristics of plant assets?

Los Lobos Corp. uses the direct method to prepare its statement of cash flows. Los Lobos’s trial balances at December 31, 2014 and 2013, are as follows.December 31 2014 2013 Debits Cash $ 35,000 $ 32,000 Accounts receivable 33,000 30,000 Inventory 31,000 47,000 Property, plant, and equipment 100,000 95,000 Unamortized bond discount 4,500 5,000 Cost of goods sold 250,000 380,000 Selling expenses 141,500 172,000 General and administrative expenses 137,000 151,300 Interest expense 4,300 2,600 Income tax expense 20,400 61,200 $756,700 $976,100 Credits Allowance for doubtful accounts $ 1,300 $ 1,100 Accumulated depreciation—plant assets 16,500 15,000 Accounts payable 25,000 15,500 Income taxes payable 21,000 29,100 Deferred tax liability 5,300 4,600 8% callable bonds payable 45,000 20,000 Common stock 50,000 40,000 Paid-in capital in excess of par 9,100 7,500 Retained earnings 44,700 64,600 Sales revenue 538,800 778,700 $756,700 $976,100 Additional information: 1. Los Lobos purchased $5,000 in equipment during 2014. 2. Los Lobos allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses. 3. Bad debt expense for 2014 was $5,000, and write-offs of uncollectible accounts totaled $4,800. Instructions Determine what amounts Los Lobos should report in its statement of cash flows for the year ended December 31, 2014, for the following items. (a) Cash collected from customers. (d) Cash paid for income taxes. (b) Cash paid to suppliers. (e) Cash paid for selling expenses. (c) Cash paid for interest.

The stockholders’ equity accounts of G.K. Chesterton Company have the following balances on December 31, 2014. Common stock, $10 par, 300,000 shares issued and outstanding $3,000,000 Paid-in capital in excess of par—common stock 1,200,000 Retained earnings 5,600,000 Shares of G.K. Chesterton Company stock are currently selling on the Midwest Stock Exchange at $37. Instructions Prepare the appropriate journal entries for each of the following cases. (a) A stock dividend of 5% is declared and issued. (b) A stock dividend of 100% is declared and issued. (c) A 2-for-1 stock split is declared and issued.

Janyce, a single taxpayer, has AGI of $125,000 and paid the following taxes this year. Calculate how much Janyce can deduct for taxes as an itemized deduction this year.

Jurassic Company owns machinery that cost $900,000 and has accumulated depreciation of $380,000.The present value of expected future net cash flows from the use of the asset are expected to be $500,000. The fair value less cost of disposal of the equipment is $400,000. Prepare the journal entry, if any, to record the impairment loss.

Describe the purpose of a pension plan’s vesting schedule and explain how it works. (LO3)

Woolford Inc. declared a cash dividend of $1.00 per share on its 2 million outstanding shares. The dividend was declared on August 1, payable on September 9 to all stockholders of record on August 15. Prepare all journal entries necessary on those three dates.

Hobbs Co. has the following defined benefit pension plan balances on January 1, 2014. Projected benefi t obligation $4,600,000 Fair value of plan assets 4,600,000 The interest (settlement) rate applicable to the plan is 10%. On January 1, 2015, the company amends its  agreement so that prior service costs of $600,000 are created. Other data related to the pension plan are: 2014 2015 Service cost $150,000 $170,000 Prior service cost amortization –0– 90,000 Contributions (funding) to the plan 200,000 184,658 Benefi ts paid 220,000 280,000 Actual return on plan assets 252,000 350,000 Expected rate of return on assets 6% 8% Instructions (a) Prepare a pension worksheet for the pension plan in 2014. (b) Prepare any journal entries related to the pension plan that would be needed at December 31, 2014. (c) Prepare a pension worksheet for 2015 and any journal entries related to the pension plan as of December 31, 2015. (d) Indicate the pension-related amounts reported in the 2015 financial statements.

A dial-indexing table has 6 stations. One station is used for loading and unloading, which is accomplished by a human worker. The other five perform processing operations. The longest process takes 25 sec and the indexing time = 5 sec. Each station has a frequency of failure = 0.015. When a failure occurs it takes an average of 3.0 min to make repairs and restart. Determine (a) hourly production rate and (b) line efficiency.

What is meant by the term “qualitative characteristics of accounting information”?

Value chain in the public sector Traditionally, government organisations have tended to operate in silos, focusing on their own objectives and managing and protecting their own budgets. Recently, however, faced with seemingly intractable economic, social and environmental problems, many government organisations have sought to develop new ways of working. In particular, they have sought to explore how their objectives overlap and depend on other organisations and how they might share information and resources. One example is provided by attempts to reduce crime and enhance public safety in the criminal justice sector.   In New Zealand the Ministry of Justice is the lead agency in the justice sector. The sector includes the New Zealand Police, the Serious Fraud Office, Child Youth and Family, the Department of Corrections and the Crown Law Office.   The organisations in the criminal justice system can be thought of as being involved in a ‘pipeline’ that begins with crime prevention and the investigation of crime and proceeds all the way through to rehabilitation (see the figure below). Looking at the sector as a pipeline, we can see that policies and actions in any part of the system will affect other parts of the system. By working as a coordinated ‘justice sector’, changes can be made that result in the best outcomes for the sector as a whole.   Within this pipeline, the operations within one agency, Public Prisons, can be further analysed to show the links between its key activities and between the department and other organisations in the sector.   Key activities follow this path: • offenders are convicted in the courts • offenders are sentenced and sent to prison • prisoners undergo an initial assessment • the serving of the sentence is planned • the offender’s sentence is managed, including provision of relevant rehabilitation programs • the offender’s release is planned and managed.   Required (a) With reference to the information provided, distinguish between the structural and executional cost drivers in this value chain. (b) Is there an ability for governments to outsource any of these value chain activities?

Francine’s mother Donna and her father Darren separated and divorced in September of this year. Francine lived with both parents until the separation. Francine does not provide more than half of her own support. Francine is 15 years old at the end of the year.  a. Is Francine a qualifying child to Donna?

Locate the IRS Web site at http://www.irs.gov/.  For every $100 the IRS collected, how much was spent on the IRS collection efforts?  What tax system criterion does this information help you to evaluate with respect to the current U.S. tax system?

Identify some of the sources for tax professional standards.  What are the potential ramifications of failing to comply with these standards?

List the stages of extrusion blow molding according to the video.

On December 31, 2014, Iva Majoli Company borrowed $62,092 from Paris Bank, signing a 5-year, $100,000 zero-interest-bearing note. The note was issued to yield 10% interest. Unfortunately, during 2016, Majoli began to experience financial difficulty. As a result, at December 31, 2016, Paris Bank determined that it was probable that it would receive back only $75,000 at maturity. The market rate of interest on loans of this nature is now 11%. Instructions (a) Prepare the entry to record the issuance of the loan by Paris Bank on December 31, 2014. (b) Prepare the entry, if any, to record the impairment of the loan on December 31, 2016, by Paris Bank.

What is the indirect effect of a change in accounting principle? Briefly describe the reporting of the indirect effects of a change in accounting principle.

How suitable are legal restrictions in the following cases? (a)  Ensuring adequate vehicle safety (e.g. that tyres have sufficient tread or that the vehicle is roadworthy). (b)  Reducing traffic congestion. (c)  Preventing the abuse of monopoly power. (d)  Ensuring that mergers are in the public interest. (e)  Ensuring that firms charge a price equal to marginal cost.

Your roommate is puzzled. During the last year, the company in which she is a stockholder reported a net loss of $675,000, yet its cash increased $321,000 during the same period of time. Explain to your roommate how this situation could occur.

Sue’s Construction is in its fourth year of business. Sue performs long-term construction projects and accounts for them using the completed-contract method. Sue built an apartment building at a price of $1,100,000. The costs and billings for this contract for the first three years are as follows. 2014 2015 2016 Costs incurred to date $240,000 $600,000 $ 790,000 Estimated costs yet to be incurred 560,000 200,000 –0– Customer billings to date 150,000 410,000 1,100,000 Collection of billings to date 120,000 340,000 950,000 Sue has contacted you, a certified public accountant, about the following concern. She would like to attract some investors, but she believes that in order to recognize revenue she must first “deliver” the product. Therefore, on her balance sheet, she did not recognize any gross profits from the above contract until 2016, when she recognized the entire $310,000. That looked good for 2016, but the preceding years looked grim by comparison. She wants to know about an alternative to this completed-contract revenue recognition. Instructions Draft a letter to Sue, telling her about the percentage-of-completion method of recognizing revenue. Compare it to the completed-contract method. Explain the idea behind the percentage-of-completion method. In addition, illustrate how much revenue she could have recognized in 2014, 2015, and 2016 if she had used this method.

What is the freeze drying process used to make certain new ceramic powders?

Using the information from BE19-2, assume this is the only difference between Oxford’s pretax financial income and taxable income. Prepare the journal entry to record the income tax expense, deferred income taxes, and income taxes payable, and show how the deferred tax liability will be classified on the December 31, 2014, balance sheet.