Question & Answer

Do all commercial borrowers receive the same interest rate on loans? (LO5)

When is a debt security considered impaired? Explain how to account for the impairment of an available-for-sale debt security.

What were some of the more obvious reasons for the savings institution crisis of the late 1980s? (LO6)

Besides high carbon content, what other alloying element is characteristic of the cast irons?

From the late 1960s through to 2000 the share of capital spending in total public-sector spending in the UK fell. What could have driven this change and does the composition of public spending matter?

Ray Albertson is 72 years old and lives by himself in an apartment in Salt Lake City.Ray’s gross income for the year is $3,000.Ray’s support is provided as follows:Himself (11 percent), his daughters Diane (20 percent) and Karen (15percent), his sons Mike (20 percent) and Kenneth (10 percent), his friend Milt (14 percent), and his cousin Henry (12 percent).Absent a multiple support agreement, of the parties mentioned in the problem, who may claim adependency exemption for Ray as a qualifying relative

On June 3, Hunt Company sold to Ann Mount merchandise having a sales price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $120, terms n/30, was received by Mount on June 8 from the Olympic Transport Service for the freight cost. Upon receipt of the goods, June 5, Mount notified Hunt Company that merchandise costing $600 contained flaws that rendered it worthless. The same day, Hunt Company issued a credit memo covering the worthless merchandise and asked that it be returned at company expense. The freight on the returned merchandise was $24, paid by Hunt Company on June 7. On June 12, the company received a check for the balance due from Mount. Instructions (a) Prepare journal entries for Hunt Company to record all the events noted above under each of the following bases. (1) Sales and receivables are entered at gross selling price. (2) Sales and receivables are entered net of cash discounts. (b) Prepare the journal entry under basis (2), assuming that Ann Mount did not remit payment until August 5.

The chief accountant for Dickinson Corporation provides you with the following list of accounts receivable written off in the current year. Date Customer Amount March 31 E. L. Masters Company $7,800 June 30 Stephen Crane Associates 6,700 September 30 Amy Lowell’s Dress Shop 7,000 December 31 R. Frost, Inc. 9,830 Dickinson Corporation follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for recognizing bad debts. All of Dickinson Corporation’s sales are on a 30-day credit basis. Sales for the current year total $2,200,000, and research has determined that bad debt losses approximate 2% of sales. Instructions (a) Do you agree or disagree with Dickinson’s policy concerning recognition of bad debt expense? Why or why not? (b) By what amount would net income differ if bad debt expense was computed using the percentageof- sales approach?

Erickson Company sponsors a defined benefit pension plan. The corporation’s actuary provides the following information about the plan. January 1, December 31, 2014 2014 Vested benefi t obligation $1,500 $1,900 Accumulated benefi t obligation 1,900 2,730 Projected benefi t obligation 2,500 3,300 Plan assets (fair value) 1,700 2,620 Settlement rate and expected rate of return 10% Pension asset/liability 800 ? Service cost for the year 2014 400 Contributions (funding in 2014) 700 Benefi ts paid in 2014 200 Instructions (a) Compute the actual return on the plan assets in 2014. (b) Compute the amount of the other comprehensive income (G/L) as of December 31, 2014. (Assume the January 1, 2014, balance was zero.) (c) Compute the amount of net gain or loss amortization for 2014 (corridor approach). (d) Compute pension expense for 2014.

What are the primary advantages of having a Codificationof generally accepted accounting principles?

How does a corporation’s decision to pay dividends affect its overall tax rate?

As you move down a straight-line demand curve, what happens to elasticity? Why?

Bella Partnership is an equal partnership in which each of the partners has a basis in their partnership interest of $10,000. Bella reports the following balance sheet: Assets: Tax Basis FMV Inventory $ 20,000 $ 30,000 Land 10,000 15,000    Totals $ 30,000 $ 45,000 Liabilities and capital: Capital- Toby 10,000 - Kaelin 10,000 - Andrew 10,000   Totals $ 30,000 a. Identify the hot assets if Toby decides to sell his partnership interest. Are these assets “hot” for purposes of distributions? b. If Bella distributes the land to Toby in complete liquidation of his partnership interest, what tax issues should be considered?

‘It is easier to control the monetary base than broader money, but it is less relevant to do so.’ Do you agree with this statement?

Describe how a business adopts a permissible accounting method. Explain whether a taxpayer can adopt an impermissible accounting method.

1.    : The MBO technique has been criticized for putting too much emphasis on achieving goals (ends) and not enough on the methods that people use to achieve them (means). Do you think this is a flaw in the technique or in the way managers apply it? How might you achieve a balanced emphasis on ends and means?

Hamderson Inc. reports the following pretax income (loss) for both financial reporting purposes and tax purposes. (Assume the carryback provision is used for a net operating loss.) Year Pretax Income (Loss) Tax Rate 2012 $120,000 34% 2013 90,000 34% 2014 (280,000) 38% 2015 220,000 38% The tax rates listed were all enacted by the beginning of 2012. Instructions (a) Prepare the journal entries for the years 2012–2015 to record income tax expense (benefit) and income taxes payable (refundable) and the tax effects of the loss carryback and carryforward, assuming that at the end of 2014 the benefits of the loss carryforward are judged more likely than not to be realized in the future. (b) Using the assumption in (a), prepare the income tax section of the 2014 income statement beginning with the line “Operating loss before income taxes.” (c) Prepare the journal entries for 2014 and 2015, assuming that based on the weight of available evidence, it is more likely than not that one-fourth of the benefits of the loss carryforward will not be realized. (d) Using the assumption in (c), prepare the income tax section of the 2014 income statement beginning with the line “Operating loss before income taxes.”

Swift Corp., a capital goods manufacturing business that started on January 4, 2014, and operates on a calendar-year basis, uses the installmentsales method of profit recognition in accounting for all its sales. The following data were taken from the 2014 and 2015 records. 2014 2015 Installment sales $480,000 $620,000 Gross profi t as a percent of costs 25% 28% Cash collections on sales of 2014 $130,000 $240,000 Cash collections on sales of 2015 –0– $160,000 The amounts given for cash collections exclude amounts collected for interest charges. Instructions (a) Compute the amount of realized gross profit to be recognized on the 2015 income statement, prepared using the installment-sales method. (Round percentages to three decimal places.) (b) State where the balance of Deferred Gross Profit would be reported on the financial statements for 2015. (c) Compute the amount of realized gross profit to be recognized on the income statement, prepared using the cost-recovery method.

Why is the drying step, so important in the processing of traditional ceramics, usually not required in processing of new ceramics?

Newton Inc. uses a calendar year for financial reporting. The company is authorized to issue 9,000,000 shares of $10 par common stock. At no time has Newton issued any potentially dilutive securities. Listed below is a summary of Newton’s common stock activities. 1. Number of common shares issued and outstanding at December 31, 2012 2,000,000 2. Shares issued as a result of a 10% stock dividend on September 30, 2013 200,000 3. Shares issued for cash on March 31, 2014 2,000,000 Number of common shares issued and outstanding at December 31, 2014 4,200,000 4. A 2-for-1 stock split of Newton’s common stock took place on March 31, 2015 Instructions (a) Compute the weighted-average number of common shares used in computing earnings per common share for 2013 on the 2014 comparative income statement. (b) Compute the weighted-average number of common shares used in computing earnings per common share for 2014 on the 2014 comparative income statement. (c) Compute the weighted-average number of common shares to be used in computing earnings per common share for 2014 on the 2015 comparative income statement. (d) Compute the weighted-average number of common shares to be used in computing earnings per common share for 2015 on the 2015 comparative income statement.

To what extent do (a) income tax, (b) VAT and (c) a poll tax meet the various requirements for a good tax system?

If a bank has more rate-sensitive liabilities than rate-sensitive assets, what will happen to its net interest margin during a period of rising interest rates? During a period of declining interest rates? (LO3)

Tim is 45 years old and considering enrolling in an insurance program that provides for long-term care insurance. He is curious about whether the insurance premiums are deductible as a medical expense. If so, he wants to know the maximum amount that can be deducted in any year.

AAA Inc. acquired a machine in year 1. In May of year 3, it sold the asset. Can AAA find its year 3 depreciation percentage for the machine on the MACRS table? If not, what adjustment must AAA make to its full-year depreciation percentage to determine its year 3 depreciation?

What are some common examples of the timing strategy?