Question & Answer

What is the nature of research and development costs?

Elon Savings and Loan Association has a large number of 30-year mortgages with floating interest rates that adjust on an annual basis, and it obtains most of its funds by issuing five-year certificates of deposit. It uses the yield curve to assess the market’s anticipation of future interest rates. Elon believes that expectations of future interest rates are the major force affecting the yield curve. Assume that a downward-sloping yield curve with a steep slope exists. Based on this information, should Elon consider using financial futures as a hedging technique? Explain. (LO2)

What is the link between sustainability strategies and management accounting?

Weisberg Corporation has 10,000 shares of $100 par value, 6%, preference shares and 50,000 ordinary shares of $10 par value outstanding at December 31, 2014. Instructions Answer the questions in each of the following independent situations. (a) If the preference shares are cumulative and dividends were last paid on the preference shares on December 31, 2011, what are the dividends in arrears that should be reported on the December 31, 2014, statement of financial position? How should these dividends be reported? (b) If the preference shares are convertible into seven shares of $10 par value ordinary shares and 3,000 shares are converted, what entry is required for the conversion, assuming the preference shares were issued at par value? (c) If the preference shares were issued at $107 per share, how should the preference shares be reported in the equity section?

Use the information for Navajo Corporation from BE10-8. Prepare the journal entry to record the exchange, assuming the exchange lacks commercial substance.

What is meant by the term overcut in electric discharge machining?

1.    : Consider the six characteristics of entrepreneurs described in this chapter. Which two traits do you think are most like those of managers in large companies? Which two are least like those of managers in large companies?

What factors could explain why some countries have a higher multiplier than others?

If the shares in a monopoly (such as a water company) were very widely distributed among the population, would the shareholders necessarily want the firm to use its monopoly power to make larger profits?

1.    In a study asking what people wanted from leaders versus followers, people ranked maturity number 8 for followers but number 15 for leaders. What might account for people wanting a higher maturity level from followers?

Derrick Company issues 4,000 shares of restricted stock to its CFO, Dane Yaping, on January 1, 2014. The stock has a fair value of $120,000 on this date. The service period related to this restricted stock is 4 years. Vesting occurs if Yaping stays with the company for 4 years. The par value of the stock is $5. At December 31, 2015, the fair value of the stock is $145,000. Instructions (a) Prepare the journal entries to record the restricted stock on January 1, 2014 (the date of grant), and December 31, 2015. (b) On March 4, 2016, Yaping leaves the company. Prepare the journal entry (if any) to account for this  forfeiture.

What are the tax advantages and disadvantages of converting a C corporation into an LLC taxed as a partnership?

The upper and lower control limits for a p chart are: LCL = 0 and UCL = 0.20. Determine the minimum possible sample size n that is compatible with this control chart.

A face milling operation is to be performed on a cast iron part to finish the surface to 36 µ-in. The cutter uses four inserts and its diameter is 3.0 in. The cutter rotates at 475 rev/min. To obtain the best possible finish, a type of carbide insert with 4/64 in nose radius is to be used. Determine the required feed rate (in/min) that will achieve the 36 µ-in finish.

The following facts relate to Duncan Corporation. 1. Deferred tax liability, January 1, 2014, $60,000. 2. Deferred tax asset, January 1, 2014, $20,000. 3. Taxable income for 2014, $105,000. 4. Cumulative temporary difference at December 31, 2014, giving rise to future taxable amounts, $230,000. 5. Cumulative temporary difference at December 31, 2014, giving rise to future deductible amounts, $95,000. 6. Tax rate for all years, 40%. No permanent differences exist. 7. The company is expected to operate profitably in the future. Instructions (a) Compute the amount of pretax financial income for 2014. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014. (c) Prepare the income tax expense section of the income statement for 2014, beginning with the line “Income before income taxes.” (d) Compute the effective tax rate for 2014.

Connie Chung Corporation adopted the dollar-value LIFO retail inventory method on January 1, 2013. At that time the inventory had a cost of $54,000 and a retail price of $100,000. The following information is available.8 Year-End Inventory at Retail Current Year Cost—Retail % Year-End Price Index 2013 $118,720 57% 106 2014 138,750 60% 111 2015 125,350 61% 115 2016 162,500 58% 125 The price index at January 1, 2013, is 100. Instructions Compute the ending inventory at December 31 of the years 2013–2016. (Round to the nearest dollar.)

Jane Ellerby and Sam Callison are discussing the recent fraud that occurred at LowRental Leasing, Inc. The fraud involved the improper reporting of revenue to ensure that the company would have income in excess of $1 million. What is fraudulent financial reporting, and how does it differ from an embezzlement of company funds?

On April 1, 2014, Dougherty Inc. entered into a costplus- fixed-fee contract to construct an electric generator for Altom Corporation. At the contract date, Dougherty estimated that it would take 2 years to complete the project at a cost of $2,000,000. The fixed fee stipulated in the contract is $450,000. Dougherty appropriately accounts for this contract under the percentage-of-completion method. During 2014, Dougherty incurred costs of $800,000 related to the project. The estimated cost at December 31, 2014, to complete the contract is $1,200,000. Altom was billed $600,000 under the contract. Instructions Prepare a schedule to compute the amount of gross profit to be recognized by Dougherty under the contract for the year ended December 31, 2014. Show supporting computations in good form.

What is the expected value of the lottery ticket gamble if the chances of purchasing a winning ticket are 1 per cent? How much of the certain pay-off is a risk-loving person willing to sacrifice if they decide to purchase the lottery ticket? If they were indifferent between purchasing and not purchasing the ticket what is their certainty equivalent and risk premium of the gamble?

For what reasons is the median hourly wage rate of women some 16 per cent lower than that of men in the UK, and the average gross weekly pay, including overtime, more than 21 per cent less?

Nicole is a calendar-year taxpayer who accounts for her business using the cash method. On average, Nicole sends out bills for about $12,000 of her services at the first of each month. The bills are due by the end of the month, and typically 70 percent of the bills are paid on time and 98 percent are paid within 60 days.

Use the information in BE7-9 for Wood. Assume that the receivables are sold with recourse. Prepare the journal entry for Wood to record the sale, assuming that the recourse liability has a fair value of $7,500.

King Company is contemplating the purchase of a smaller company, which is a distributor of King’s products. Top management of King is convinced that the acquisition will result in significant synergies in its selling and distribution functions. The financial management group (of which you are a part) has been asked to prepare some analysis of the effects of the acquisition on the combined company’s financial statements. This is the first acquisition for King, and some of the senior staff insist that based on their recollection of goodwill accounting, any goodwill recorded on the acquisition will result in a “drag” on future earnings for goodwill amortization. Other younger members on the staff argue that goodwill accounting has changed. Your supervisor asks you to research this issue. Instructions If your school has a subscription to the FASB Codification, go to http://aaahq.org/asclogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses. (a) Identify the accounting literature that addresses goodwill and other intangible assets. (b) Define goodwill. (c) Is goodwill subject to amortization? Explain. (d) When goodwill is recognized by a subsidiary, should it be tested for impairment at the consolidated level or the subsidiary level? Discuss.

Use the information for Rode Inc. given in BE19-13. Assume that it is more likely than not that the entire net operating loss carryforward will not be realized in future years. Prepare all the journal entries necessary at the end of 2014.

Broussard Company reported net income of $3.5 million in 2014. Depreciation for the year was $520,000; accounts receivable increased $500,000; and accounts payable increased $300,000. Compute net cash flow from operating activities using the indirect method.