Question & Answer

State how each of the following items is reflected in the financial statements. (a) Change from FIFO to LIFO method for inventory valuation purposes. (b) Charge for failure to record depreciation in a previous period. (c) Litigation won in current year, related to prior period. (d) Change in the realizability of certain receivables. (e) Write-off of receivables. (f) Change from the percentage-of-completion to the completed-contract method for reporting net income.

Explain why the medical expense provisions are sometimes referred to as “wherewithal” deductions and how this rationale is reflected in the limits on these deductions.

Under what circumstances would the IRS issue an acquiescence? A nonacquiescence? An action on decision?

1.       : Do you agree with the idea that people have innate biases and will automatically discriminate if left to their own devices? Discuss.

The following information is related to Dickinson Company for 2014. Retained earnings balance, January 1, 2014 $ 980,000 Sales revenue 25,000,000 Cost of goods sold 16,000,000 Interest revenue 70,000 Selling and administrative expenses 4,700,000 Write-off of goodwill 820,000 Income taxes for 2014 1,244,000 Gain on the sale of investments (normal recurring) 110,000 Loss due to fl ood damage—extraordinary item (net of tax) 390,000 Loss on the disposition of the wholesale division (net of tax) 440,000 Loss on operations of the wholesale division (net of tax) 90,000Dividends declared on common stock $250,000 Dividends declared on preferred stock 80,000 Dickinson Company decided to discontinue its entire wholesale operations and to retain its manufacturing operations. On September 15, Dickinson sold the wholesale operations to Rogers Company. During 2014, there were 500,000 shares of common stock outstanding all year. Instructions Prepare a multiple-step income statement and a retained earnings statement.

1.    How might a corporate management team go about determining whether the company should diversify? What factors should team members consider? What kinds of information should they collect?

What does the term anisotropic mean?

If you were given complete authority in the matter, howwould you propose that GAAP should be developed andenforced?

Ben Sisko Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment. Abstract company’s fee for title search $ 520 Architect’s fees 3,170 Cash paid for land and dilapidated building thereon 87,000 Removal of old building $20,000 Less: Salvage 5,500 14,500 Interest on short-term loans during construction 7,400 Excavation before construction for basement 19,000 Machinery purchased (subject to 2% cash discount, which was not taken) 55,000 Freight on machinery purchased 1,340 Storage charges on machinery, necessitated by noncompletion of building when machinery was delivered 2,180 New building constructed (building construction took 6 months from date of purchase of land and old building) 485,000 Assessment by city for drainage project 1,600 Hauling charges for delivery of machinery from storage to new building 620 Installation of machinery 2,000 Trees, shrubs, and other landscaping after completion of building (permanent in nature) 5,400 Instructions Determine the amounts that should be debited to Land, to Buildings, and to Machinery and Equipment. Assume the benefits of capitalizing interest during construction exceed the cost of implementation. Indicatehow any costs not debited to these accounts should be recorded.

A turning operation uses a cutting speed = 200 m/min, feed = 0.25 mm/rev, and depth of cut = 4.00 mm. The thermal diffusivity of the work material = 20 mm2 /s and the volumetric specific heat = 3.5 (10-3 ) J/mm3 -C. If the temperature increase above ambient temperature (20°F) is measured by a tool-chip thermocouple to be 700°C, determine the specific energy for the work material in this operation.

The following are three independent, unrelated sets of facts relating to accounting changes. Situation 1: Sanford Company is in the process of having its first audit. The company has used the cash basis of accounting for revenue recognition. Sanford president, B. J. Jimenez, is willing to change to the accrual method of revenue recognition. Situation 2: Hopkins Co. decides in January 2015 to change from FIFO to weighted-average pricing for its inventories. Situation 3: Marshall Co. determined that the depreciable lives of its fixed assets are too long at present to fairly match the cost of the fixed assets with the revenue produced. The company decided at the beginning of the current year to reduce the depreciable lives of all of its existing fixed assets by 5 years. Instructions For each of the situations described, provide the information indicated below. (a) Type of accounting change. (b) Manner of reporting the change under current generally accepted accounting principles, including a discussion where applicable of how amounts are computed. (c) Effect of the change on the balance sheet and income statement.

a.       Elmer should include in gross income the $1,200 gross pay he received for the three days he was not required to work but still received compensation. b.       Amax employees should include the value of the furniture ($250) in gross income.

Rubio recently invested $20,000 (tax basis) in purchasing a limited partnership interest. His at-risk amount is $15,000. In addition, Rubio’s share of the limited partnership loss for the year is $22,000, his share of income from a different limited partnership is $5,000, and he has $40,000 in wage income and $10,000 in long-term capital gains. a. How much of Rubio’s $22,000 loss is allowed considering only the tax basis loss limitations? b. How much of the loss from part (a) is allowed under the at-risk limitations? c. How much of Rubio’s $22,000 loss from the limited partnership can he deduct in the current year considering all limitations?

The following are selected transactions that may affect stockholders’ equity. 1. Recorded accrued interest earned on a note receivable. 2. Declared a cash dividend. 3. Declared and distributed a stock split. 4. Approved a retained earnings restriction. 5. Recorded the expiration of insurance coverage that was previously recorded as prepaid insurance. 6. Paid the cash dividend declared in item 2 above. 7. Recorded accrued interest expense on a note payable. 8. Declared a stock dividend. 9. Distributed the stock dividend declared in item 8. Instructions In the following table, indicate the effect each of the nine transactions has on the financial statement elements listed. Use the following code: I 5 Increase, D 5 Decrease, NE 5 No effect.

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.

The financial statements of ConAgra Foods, Inc.’s 2012 annual report disclose the following information. (in millions) May 27, 2012 May 29, 2011 May 30, 2010 Inventories $1,870 $1,803 $1,598 Fiscal Year 2012 2011 Net sales $13,263 $12,303 Cost of goods sold 10,436 9,390 Net income 474 818 Instructions Compute ConAgra’s (a) inventory turnover and (b) the average days to sell inventory for 2012 and 2011.

Using the information in E20-13 about Erickson Company’s defined benefit pension plan, prepare a 2014 pension worksheet with supplementary schedules of computations. Prepare the journal entries at December 31, 2014, to record pension expense and related pension transactions. Also, indicate the pension amounts reported in the balance sheet.

Construct a table similar to Table 17.3, only this time assume that the mpcd is ¾. Show that national income will increase by £640 million.

Ballard Co. reported $145,000 of net income for 2014. The accountant, in preparing the statement of cash flows, noted the following items occurring during 2014 that might affect cash flows from operating activities. 1. Ballard purchased 100 shares of treasury stock at a cost of $20 per share. These shares were then resold at $25 per share. 2. Ballard sold 100 shares of IBM common at $200 per share. The acquisition cost of these shares was $145 per share. This investment was shown on Ballard’s December 31, 2013, balance sheet as an available-for-sale security. 3. Ballard revised its estimate for bad debts. Before 2014, Ballard’s bad debt expense was 1% of its net sales. In 2014, this percentage was increased to 2%. Net sales for 2014 were $500,000, and net accounts receivable decreased by $12,000 during 2014. 4. Ballard issued 500 shares of its $10 par common stock for a patent. The market price of the shares on the date of the transaction was $23 per share. 5. Depreciation expense is $39,000. 6. Ballard Co. holds 40% of the Nirvana Company’s common stock as a long-term investment. Nirvana Company reported $27,000 of net income for 2014. 7. Nirvana Company paid a total of $2,000 of cash dividends to all investees in 2014. 8. Ballard declared a 10% stock dividend. One thousand shares of $10 par common stock were distributed. The market price at date of issuance was $20 per share. Instructions Prepare a schedule that shows the net cash flow from operating activities using the indirect method. Assume no items other than those listed above affected the computation of 2014 net cash flow from operating activities.

Lois Kenseth, president of Sycamore Corporation, is concerned about several large stockholders who have been very vocal lately in their criticisms of her leadership. She thinks they might mount a campaign to have her removed as the corporation’s CEO. She decides that buying them out by purchasing their shares could eliminate them as opponents, and she is confident they would accept a “good” offer. Kenseth knows the corporation’s cash position is decent, so it has the cash to complete the transaction. She also knows the purchase of these shares will increase earnings per share, which should make other investors quite happy. (Earnings per share is calculated by dividing net income available for the common shareholders by the weighted-average number of shares outstanding. Therefore, if the number of shares outstanding is decreased by purchasing treasury shares, earnings per share increases.) Instructions Answer the following questions. (a) Who are the stakeholders in this situation? (b) What are the ethical issues involved? (c) Should Kenseth authorize the transaction?

What does the term advanced composites mean?

What is the purpose of a fair value hedge?

How does separating current assets from property, plant, and equipment in the balance sheet help analysts?

How are deferred tax assets and deferred tax liabilities reported on the balance sheet?

What is a production line?