Question & Answer

Consider situations where you might consider swapping items with someone. Why are such situations relatively rare? Can you think of circumstances in which this might be more common?

Explain the adverse selection and moral hazard problems in insurance. Gorton Insurance Company wants to properly price its auto insurance, which protects against losses due to auto accidents. If Gorton wants to avoid the adverse selection and moral hazard problems, should it assess the behavior of insured people, uninsured people, or both groups? Explain. (LO1)

ROI; transfer prices; taxes; employee motivation Fowler Electronics produces colour plasma screens in its Bien Hoa plant in Vietnam. The screens are then shipped to the entity’s plant in Sturt, South Australia, where they are incorporated into finished televisions. Although the Bien Hoa plant never sells plasma screens to any other assembler, the market for them is competitive. The market price is $750 per screen.   Variable costs to manufacture the screens are $350. Fixed costs at the Windsor plant are $2 000 000 per period. The plant typically manufactures and ships 10 000 screens per period to the Sturt plant. Taxes in Vietnam amount to 30 per cent, of pre-tax income. The Windsor plant has total assets of $20 000 000.   The Sturt plant incurs variable costs to complete the televisions of $110 per set (in addition to the cost of the screens). The Sturt plant’s fixed costs amount to $4 000 000 per period. The 10 000 sets produced each period are sold for an average of $2500 each. For Sturt, the tax rate is 45 per cent of pre-tax income. The Sturt plant has total assets of $30 000 000.   Required (a)        Determine the return on investment for each plant if the screens are transferred at variable cost. (b)        Determine the return on investment for each plant if the screens are transferred at market price. (c)        To reduce taxes, will Fowler prefer a transfer price based on cost or market price? Explain. (d)        Will the top managers in each plant prefer to use cost or market price as the transfer price? Explain. (e)        How would you resolve potential conflict over the transfer price policy?

1. Do poor people gain more from a cut in income tax with an elastic or an inelastic supply of labour? Is the supply of unskilled workers likely to be elastic or inelastic? 2. Draw two diagrams like Figure 11.13, one with a steep demand curve and one with a shallow demand curve. How does the elasticity of demand affect the incidence of the income tax?

Carow Corporation purchased, as a held-for-collection investment, $60,000 of the 8%, 5-year bonds of Harrison, Inc. for $65,118, which provides a 6% return. The bonds pay interest semiannually. Prepare Carow’s journal entries for (a) the purchase of the investment, and (b) the receipt of semiannual interest and premium amortization.

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

Explain the meaning of a temporary difference as it relates to deferred tax computations, and give three examples.

Is the cross-price elasticity of demand for road space with respect to the price of cars likely to be high or low?

What effect will the following have on the mpc: (a)     the rate of income tax rises; (b)     the economy begins to recover from recession; (c)     people anticipate that the rate of inflation is about to rise; (d)     the government redistributes income from the rich to the poor? In each case sketch what would happen to the consumption function.

Compare and contrast different ways in which a taxpayer triggers a realization event by disposing of an asset.

Identify some materials that possess a noncrystalline structure.

What is meant by consumption smoothing and of what significance might it be for the relationship between spending and income?

Clarence Weatherspoon, a super salesman contemplating retirement on his fifty-fifth birthday, decides to create a fund on an 8% basis that will enable him to withdraw $20,000 per year on June 30, beginning in 2018 and continuing through 2021. To develop this fund, Clarence intends to make equal contributions on June 30 of each of the years 2014–2017. Instructions (a) How much must the balance of the fund equal on June 30, 2017, in order for Clarence Weatherspoon to satisfy his objective? (b) What are each of Clarence’s contributions to the fund?

What is the difference between open and closed facts?  How is this distinction important in conducting taxresearch?

Cominsky Company purchased a machine on July 1, 2015, for $28,000. Cominsky paid $200 in title fees and county property tax of $125 on the machine. In addition, Cominsky paid $500 shipping charges for delivery, and $475 was paid to a local contractor to build and wire a platform for the machine on the plant floor. The machine has an estimated useful life of 6 years with a salvage value of $3,000. Determine the depreciation base of Cominsky’s new machine. Cominsky uses straight-line depreciation.

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.

Your accounts receivable clerk, Mitra Adams, to whom you pay a salary of $1,500 per month, has just purchased a new Acura. You decided to test the accuracy of the accounts receivable balance of $82,000 as shown in the ledger. The following information is available for your first year in business. (1) Collections from customers $198,000 (2) Merchandise purchased 320,000 (3) Ending merchandise inventory 90,000 (4) Goods are marked to sell at 40% above cost Instructions Compute an estimate of the ending balance of accounts receivable from customers that should appear in the ledger and any apparent shortages. Assume that all sales are made on account.

Internal and external reports Classify the following reports as internal or external. (a)          Operating budget           (b)          Credit reports                             (c)           Financial statements                   (d)          Capital budget                            (e)           Tax returns                                 (f)           Analysis of product mix

1.    Assume that you are a project manager at a biotechnology company and that you work with managers from research, production, and marketing on a major product modification. You notice that every memo you receive from the marketing manager has been copied to senior management. At every company function, she spends time talking to the big shots. You are also aware that sometimes when you and the other project members are working tirelessly over the project, she is playing golf with senior managers. What is your evaluation of her behavior? As project manager, what do you do?

A sheet-metal part 3.0 mm thick and 20.0 mm long is bent to an included angle = 60° and a bend radius = 7.5 mm in a V-die. The metal has a yield strength = 220 MPa and a tensile strength = 340 MPa. Compute the required force to bend the part, given that the die opening dimension = 15 mm.

What implication does the financial instability hypothesis have for the balance sheets of different sectors of the economy?

Mechanical surface treatments are often performed for reasons other than or in addition to cleaning. What are the reasons?

1.       : A survey of teachers found that two of the most important rewards were the belief that their work was important and a feeling of accomplishment. According to Maslow’s hierarchy of needs theory, what needs do these rewards meet?

1.       : How might organizations strike a balance between respecting and meeting the needs of a diverse workforce and shaping a well-focused high-performance corporate culture based on shared values?

Consider the prevailing conditions for inflation (including oil prices), the economy, interest rates, and any other factors that could affect exchange rates. Based on these conditions, do you think the euro’s value will likely appreciate or depreciate against the dollar for the remainder of this semester? Offer some logic to support your answer. Which factor do you think will have the biggest impact on the euro’s exchange rate? (LO2)