Question & Answer

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.

A GTAW operation is performed on low carbon steel, whose unit melting energy is 10.3 J/mm3. The welding voltage is 22 volts and the current is 135 amps. The heat transfer factor is 0.7 and the melting factor is 0.65. If filler metal wire of 3.5 mm diameter is added to the operation, the final weld bead is composed of 60% volume of filler and 40% volume base metal. If the travel speed in the operation is 5 mm/sec, determine (a) cross-sectional area of the weld bead, and (b) the feed rate (mm/sec) at which the filler wire must be supplied.

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.

Of what use is the statement of cash flows?

Presented below are three revenue recognition situations. (a) Grupo sells goods to MTN for $1,000,000, payment due at delivery. (b) Grupo sells goods on account to Grifols for $800,000, payment due in 30 days. (c) Grupo sells goods to Magnus for $500,000, payment due in two installments: the first installment payable in 6 months and the second payment due 3 months later. Instructions Indicate how each of these transactions is reported.

(Looking at the Maths) What is the present value (utility) of a good which yields £50 of utility at the end of year 1, £60 at the end of year 2, £100 at the end of year 3 and £50 at the end of year 4, assuming a discount factor of 0.9? Would it be worth the consumer paying £200 for it today?

A blanking die is to be designed to blank the part outline shown in Figure P20.4. The material is 4 mm thick stainless steel (half hard). Determine the dimensions of the blanking punch and the die opening.

Henning Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the year 2014 in which no benefits were paid. 1. The actuarial present value of future benefits earned by employees for services rendered in 2014 amounted to $56,000. 2. The company’s funding policy requires a contribution to the pension trustee amounting to $145,000 for 2014. 3. As of January 1, 2014, the company had a projected benefit obligation of $900,000, an accumulated benefit obligation of $800,000, and a debit balance of $400,000 in accumulated OCI (PSC). The fair value of pension plan assets amounted to $600,000 at the beginning of the year. The actual and expected return on plan assets was $54,000. The settlement rate was 9%. No gains or losses occurred in 2014 and no benefits were paid. 4. Amortization of prior service cost was $50,000 in 2014. Amortization of net gain or loss was not required in 2014. Instructions (a) Determine the amounts of the components of pension expense that should be recognized by the company in 2014. (b) Prepare the journal entry or entries to record pension expense and the employer’s contribution to the pension trustee in 2014. (c) Indicate the amounts that would be reported on the income statement and the balance sheet for the year 2014.

What kinds of questions about future cash flows do investors and creditors attempt to answer with information in the income statement?

What interest rates should be used in determining the amount of interest to be capitalized? How should the amount of interest to be capitalized be determined?

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

(Looking at the Maths) 1. Referring to equation (3), if the term a has a value of –50 000 and the term b a value of 0.001, construct a demand schedule with respect to total income (Y). Do this for incomes between £100 million and £300 million at £50 million intervals. (Looking at the Maths) 2. Now use this schedule to plot a demand curve with respect to income. Comment on its shape.

Ray and Matias each own 50 percent capital and profits interests in Alpine Properties LLC. Alpine builds and manages rental real estate, and Ray and Matias each work full time (over 1,000 hours per year) managing Alpine. Alpine’s liabilities (at both the beginning and end of the year) consist of $1,500,000 in nonrecourse mortgages obtained from an unrelated bank and secured by various rental properties. At the beginning of the current year, Ray and Matias each had a tax basis of $250,000 in his LLC interest, including his share of the nonrecourse mortgage liability. Alpine’s ordinary business losses for the current year totaled $600,000, and neither member is involved in other activities that generate passive income. a. How much of each member’s loss is suspended because of the tax-basis limitation? b. How much of each member’s loss is suspended because of the at-risk limitation? c. How much of each member’s loss is suspended because of the passive activity loss limitation? [Hint: See §469(c)(7).] d. If both Ray and Matias are single and Ray has a current-year loss of $100,000 from a sole proprietorship, how much trade or business loss can each deduct on his tax return in the current year?

1.       : Have you experienced any of the five contributions of teams shown in Exhibit 18.2 with a team in which you have participated? Describe your experience and why you think the team was able to make that specific contribution.

Presented below are income statements prepared on a LIFO and FIFO basis for Kenseth Company, which started operations on January 1, 2013. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2014. The FIFO income statement is computed in accordance with the requirements of GAAP. Kenseth’s profit-sharing agreement with its employees indicates that the company will pay employees 10% of income before profit-sharing. Income taxes are ignored. LIFO Basis FIFO Basis 2014 2013 2014 2013 Sales $3,000 $3,000 $3,000 $3,000 Cost of goods sold 1,130 1,000 1,100 940 Operating expenses 1,000 1,000 1,000 1,000 Income before profi t-sharing 870 1,000 900 1,060 Profi t-sharing expense 87 100 96 100 Net income $ 783 $ 900 $ 804 $ 960 Instructions Answer the following questions. (a) If comparative income statements are prepared, what net income should Kenseth report in 2013 and 2014? (b) Explain why, under the FIFO basis, Kenseth reports $100 in 2013 and $96 in 2014 for its profit-sharing expense. (c) Assume that Kenseth has a beginning balance of retained earnings at January 1, 2014, of $8,000 using the LIFO method. The company declared and paid dividends of $500 in 2014. Prepare the retained earnings statement for 2014, assuming that Kenseth has switched to the FIFO method.

Archer Construction Company began work on a $420,000 construction contract in 2014. During 2014, Archer incurred costs of $278,000, billed its customer for $215,000, and collected $175,000. At December 31, 2014, the estimated future costs to complete the project total $162,000. Prepare Archer’s journal entry to record profit or loss using (a) the percentage-of-completion method and (b) the completed-contract method, if any.

What effects will the following have on the equilibrium rate of interest? (You should consider which way the demand and/or supply curves of money shift.)          (a)  Banks find that they have a higher liquidity ratio than they need.          (b)  A rise in incomes.          (c)  A growing belief that interest rates will rise from their current level.

Marvin Company is a subsidiary of Hughes Corp. The controller believes that the yearly allowance for doubtful accounts for Marvin should be 2% of net credit sales. Given the recession and the high interest rate environment, the president, nervous that the parent company might expect the subsidiary to sustain its 10% growth rate, suggests that the controller increase the allowance for doubtful accounts to 3% yearly. The president thinks that the lower net income, which reflects a 6% growth rate, will be a more sustainable rate for Marvin Company. Instructions (a) In a recessionary environment with tight credit and high interest rates: (1) Identify steps Marvin Company might consider to improve the accounts receivable situation. (2) Then evaluate each step identified in terms of the risks and costs involved. (b) Should the controller be concerned with Marvin Company’s growth rate in estimating the allowance? Explain your answer. (c) Does the president’s request pose an ethical dilemma for the controller? Give your reasons.

Which of the above assumptions do you think would be correct in each of the following cases?                (a)  Supermarket checkout operators.                (b)  Agricultural workers.                (c)  Crane operators.                (d)  Economics teachers.                (e)  Call-centre workers.                (f)   Professional footballers.                (g)  Bar workers.

Myers Company provides you with the following condensed balance sheet information. Assets Liabilities and Stockholders’ Equity Current assets $ 40,000 Current and long-term liabilities $100,000 Equity investments (trading) 60,000 Stockholders’ equity Equipment (net) 250,000 Common stock ($5 par) $ 20,000 Intangibles 60,000 Paid-in capital in excess of par 110,000 Total assets $410,000 Retained earnings 180,000 310,000 Total liabilities and stockholders’ equity $410,000 Instructions For each transaction below, indicate the dollar impact (if any) on the following five items: (1) total assets, (2) common stock, (3) paid-in capital in excess of par, (4) retained earnings, and (5) stockholders’ equity. (Each situation is independent.) (a) Myers declares and pays a $0.50 per share cash dividend. (b) Myers declares and issues a 10% stock dividend when the market price of the stock is $14 per share. (c) Myers declares and issues a 30% stock dividend when the market price of the stock is $15 per share. (d) Myers declares and distributes a property dividend. Myers gives one share of its equity investment (ABC stock) for every two shares of Myers Company stock held. Myers owns 10,000 shares of ABC. ABC is selling for $10 per share on the date the property dividend is declared. (e) Myers declares a 2-for-1 stock split and issues new shares.

Describe the advantages and disadvantages of equity rewards.             (LO3)