Question & Answer

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

Would it be desirable for all countries to stick to the same targets?

When the Fed lowers the federal funds rate target, will the cost of capital of U.S. companies be reduced? Explain how the segmented markets theory regarding the term structure of interest rates (as explained in Chapter 3) could influence the degree to which the Fed’s monetary policy affects long-term interest rates. (LO2)

Using the facts in Problem 51, what is the minimum tax that Pedro should pay to make the tax structure vertically equitable based on the tax rate paid?  This would result in what type of tax rate structure?

Amiras Corporation began operations on January 1, 2014, with a beginning inventory of $30,100 at cost and $50,000 at retail. The following information relates to 2014. Retail Net purchases ($108,500 at cost) $150,000 Net markups 10,000 Net markdowns 5,000 Sales revenue 126,900 Instructions (a) Assume Amiras decided to adopt the conventional retail method. Compute the ending inventory tobe reported in the balance sheet. (b) Assume instead that Amiras decides to adopt the dollar-value LIFO retail method. The appropriate price indexes are 100 at January 1 and 110 at December 31. Compute the ending inventory to be reported in the balance sheet. (c) On the basis of the information in part (b), compute cost of goods sold.

Who are the two key international players in the development of international accounting standards? Explain their role.

68. Two years ago, Bethesda Corporation bought a delivery truck for $30,000 (not subject to the luxury auto depreciation limits). Bethesda used MACRS 200 percent declining balance and the half-year convention to recover the cost of the truck, but it did not elect §179 expensing and opted out of bonus depreciation. Answer the questions for the following alternative scenarios. a. Assuming Bethesda used the truck until it sold it in March of year 3, what depreciation expense can it claim on the truck for years 1 through 3?  b. Assume that Bethesda claimed $18,480 of depreciation expense on the truck before it sold it in year 3. What are the amount and character of the gain or loss if Bethesda sold the truck in year 3 for $17,000 and incurred $2,000 of selling expenses on the sale? c. Assume that Bethesda claimed $18,480 of depreciation expense on the truck before it sold it in year 3. What are the amount and character of the gain or loss if Bethesda sold the truck in year 3 for $35,000 and incurred $3,000 of selling expenses on the sale?

This year, Justin B.’s share of S corporation income includes $4,000 of interest income, $5,000 of dividend income, and $40,000 of net income from the corporation’s professional service business activity.  a) Assume that Justin B. materially participates in the S corporation. How much of his S corporation income is potentially subject to the net investment income tax?

What is the fair value option? Where do companies that elect the fair value option report unrealized holding gains and losses?

On January 1, 2014, Pennington Corporation purchased 30% of the common shares of Edwards Company for $180,000. During the year, Edwards earned net income of $80,000 and paid dividends of $20,000. Instructions Prepare the entries for Pennington to record the purchase and any additional entries related to this investment in Edwards Company in 2014.

Name the two categories of component mounting to a printed circuit board.

What are some of the weaknesses of ceramics that might be corrected in fiber-reinforced ceramic matrix composites?

WCC Corp. has a $100,000 net operating loss carryover into 2024. Assume that it reported $75,000 of taxable income in 2024 (before the net operating loss deduction) and $30,000 of taxable income in 2025 (before the net operating loss deduction).

Elton Co. has the following postretirement benefit plan balances on January 1, 2014. Accumulated postretirement benefi t obligation $2,250,000 Fair value of plan assets 2,250,000 The interest (settlement) rate applicable to the plan is 10%. On January 1, 2015, the company amends the plan so that prior service costs of $175,000 are created. Other data related to the plan are: 2014 2015 Service costs $ 75,000 $ 85,000 Prior service costs amortization –0– 12,000 Contributions (funding) to the plan 45,000 35,000 Benefi ts paid 40,000 45,000 Actual return on plan assets 140,000 120,000 Expected rate of return on assets 8% 6% Instructions (a) Prepare a worksheet for the postretirement plan in 2014. (b) Prepare any journal entries related to the postretirement plan that would be needed at December 31, 2014. (c) Prepare a worksheet for 2015 and any journal entries related to the postretirement plan as of December 31, 2015. (d) Indicate the postretirement-benefit–related amounts reported in the 2015 financial statements.

Cameron purchases stock in Corporation X and in Corporation Y.  Neither corporation pays dividends.  The stocks both earn an identical before-tax rate of return.  Cameron sells stock in Corporation X after three years and he sells the stock in Corporation Y after five years.  Which investment likely earned a greater after-tax return?  Why?

Aluminum wiring was used in many homes in the 1960s due to the high cost of copper at the time. Aluminum wire that was 12 gauge (a measure of cross-sectional area) was rated at 15 A of current. If copper wire of the same gauge were used to replace the aluminum wire, what current should the wire be capable of carrying if all factors except resistivity are considered equal? Assume that the resistance of the wire is the primary factor that determines the current it can carry and the crosssectional area and length are the same for the aluminum and copper wires

Keyser Beverage Company reported the following items in the most recent year. Net income $40,000 Dividends paid 5,000 Increase in accounts receivable 10,000 Increase in accounts payable 7,000 Purchase of equipment (capital expenditure) 8,000 Depreciation expense 4,000 Issue of notes payable 20000,3RIEF EXERCISES Compute net cash provided by operating activities, the net change in cash during the year, and free cash flow.

How is the Schedule M-1 similar to and different from a Schedule M-3?  How does a corporation determine whether it must complete Schedule M-1 or Schedule M-3 when it completes its tax return?

Types of manager decisions Suppose that the following are activities conducted by Microsoft Corporation. A. Comparing the timeliness of development steps of a new release of Windows with the timeline that was laid out to guide development. B. Developing a timeline for the release of new Windows and Microsoft Office products over the next year. C. Debugging the next version of Windows. D. Providing technical support to customers who are having problems with Microsoft Office. E. Estimating cash expenditures for the next year. F. Comparing budgeted costs to actual costs and discussing major differences with department managers. G. Deciding whether to construct a new building on the Microsoft site.   Required Identify whether each activity is most likely part of: (a)          organisational strategies (b)          operating plans (c)           actual operations (d)          measuring, monitoring, and motivating. For each item, explain why. (LO1)

Relative performance evaluation Relative performance evaluation at the company level often results in using a market index like the ASX100 as the peer group.   Required Outline the potential advantages and disadvantages of this practice.             (LO2, 3 and 5)

Tawana owns and operates a sole proprietorship and has a 37 percent marginal tax rate. She provides her son, Jonathon, $8,000 a year for college expenses. Jonathon works as a pizza delivery person every fall and has a marginal tax rate of 15 percent.  a. What could Tawana do to reduce her family tax burden?  b. How much pretax income does it currently take Tawana to generate the $8,000 (after taxes) given to Jonathon?  c. If Jonathon worked for his mother’s sole proprietorship, what salary would she have to pay him to generate $8,000 after taxes (ignoring any Social Security, Medicare, or self-employment tax issues)?  d. How much money would the strategy in part (c) save?

Geiberger Corporation manufactures replicators. On January 1, 2014, it leased to Althaus Company a replicator that had cost $110,000 to manufacture. The lease agreement covers the 5-year useful life of the replicator and requires 5 equal annual rentals of $40,800 payable each January 1, beginning January 1, 2014. An interest rate of 12% is implicit in the lease agreement. Collectibility of the rentals is reasonably assured, and there are no important uncertainties concerning costs. Prepare Geiberger’s January 1, 2014, journal entries.

Hugh has the choice between investing in a City of Heflin bond at 6 percent or investing in a Surething Inc. bond at 9 percent.  Assuming that both bonds have the same nontax characteristics and that Hugh has a 40 percent marginal tax rate, in which bond should he invest?

Perez Company reported an increase in inventories in the past year. Discuss the effect of this change on the current ratio (current assets 4 current liabilities). What does this tell a statement user about Perez Company’s liquidity?

Dierdorf Inc., a closely held corporation, has decided to go public. The controller, Ed Floyd, is concerned with presenting interim data when an inventory write-down is recorded. What problems are encountered with inventories when quarterly data are presented?