Question & Answer

Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through the retention of earnings. A stock or a cash dividend has never been declared. Presented below is a brief financial summary of Matheny Inc. operations. ($000 omitted) 2015 2014 2013 2012 2011 Sales revenue $20,000 $16,000 $14,000 $6,000 $4,000 Net income 2,400 1,400 800 700 250 Average total assets 22,000 19,000 11,500 4,200 3,000 Current assets 8,000 6,000 3,000 1,200 1,000 Working capital 3,600 3,200 1,200 500 400 Common shares: Number of shares  outstanding (000) 2,000 2,000 2,000 20 20 Average market price $9 $6 $4 — — Instructions (a) Suggest factors to be considered by the board of directors in establishing a dividend policy. (b) Compute the return on assets, profit margin on sales, earnings per share, price-earnings ratio, and current ratio for each of the 5 years for Matheny Inc. (c) Comment on the appropriateness of declaring a cash dividend at this time, using the ratios computed in part (b) as a major factor in your analysis.

Oliver Corporation has owned stock of Conrad Corporation since 2011. At December 31, 2014, its balances related to this investment were: Equity Investments $185,000 Fair Value Adjustment (AFS) 34,000 Dr. Unrealized Holding Gain or Loss—Equity 34,000 Cr. On January 1, 2015, Oliver purchased additional stock of Conrad Company for $475,000 and now has significant influence over Conrad. If the equity method had been used in 2011–2014, Oliver’s share of income would have been $33,000 greater than dividends received. Prepare Oliver’s journal entries to record th purchase of the investment and the change to the equity method.

A horizontal true centrifugal casting process is used to make aluminum rings with the following dimensions: length = 5 cm, outside diameter = 65 cm, and inside diameter = 60 cm. (a) Determine the rotational speed that will provide a G-factor = 60. (b) Suppose that the ring were made out of steel instead of aluminum. If the rotational speed computed in part (a) were used in the steel casting operation, determine the G-factor and (c) centrifugal force per square meter (Pa) on the mold wall. (d) Would this rotational speed result in a successful operation?

How are financial accountants challenged in their work tomake ethical decisions? Is technical mastery of GAAP not sufficient to the practice of financial accounting?

Explain how the investment account is affected by investee activities under the equity method.

Cecil cashed in a Series EE savings bond with a redemption value of $14,000 and an original cost of $9,800. For each of the following independent scenarios, calculate the amount of interest Cecil will include in his gross income assuming he files as a single taxpayer:

At the end of 2013, Lucretia McEvil Company has $180,000 of cumulative temporary differences that will result in reporting future taxable amounts as shown on the next page. 2014 $ 60,000 2015 50,000 2016 40,000 2017 30,000 $180,000 Tax rates enacted as of the beginning of 2012 are: 2012 and 2013 40% 2014 and 2015 30% 2016 and later 25% McEvil’s taxable income for 2013 is $320,000. Taxable income is expected in all future years. Instructions (a) Prepare the journal entry for McEvil to record income taxes payable, deferred income taxes, and income tax expense for 2013, assuming that there were no deferred taxes at the end of 2012. (b) Prepare the journal entry for McEvil to record income taxes payable, deferred income taxes, and income tax expense for 2013, assuming that there was a balance of $22,000 in a Deferred Tax Liability account at the end of 2012.

Jennie’s grandmother paid her tuition this fall to State University (an eligible educational institution).  Jennie is claimed as a dependent by her parents, but she also files her own tax return.  Can Jennie claim an education credit for the tuition paid by her grandmother?  What difference would it make, if any, if Jennie did not qualify as a dependent of her parents (or anyone else)?

Describe the dilemma of securities firms that served as underwriters for Facebook’s IPOs when attempting to satisfy Facebook and the institutional investors that invested in Facebook’s stock. Do you think that those securities firms satisfied Facebook or the investors in the IPO? Explain. (LO3)

Give two examples of machining operations in which generating and forming are combined to create workpart geometry.

A silicon wafer has a processable area of 35.0 in2. The yield of good chips on this wafer is Ym = 75%. If the defects are all assumed to be point defects, determine the density of point defects using the Bose-Einstein method of estimating yield.

Identify some of the general principles and guidelines that apply specifically to automated assembly.

Recently, your uncle, Carlos Beltran, who knows that you always have your eye out for a profitable investment, has discussed the possibility of your purchasing some corporate bonds. He suggests that you may wish to get in on the “ground floor” of this deal. The bonds being issued by Neville Corp. are 10-year debentures which promise a 40% rate of return. Neville manufactures  novelty/party items. You have told Neville that, unless you can take a look at its financial statements, you would not feel comfortable about such an investment. Believing that this is the chance of a lifetime, Uncle Carlos has procured a copy of Neville’s most recent, unaudited financial statements which are a year old. These statements were prepared by Mrs. Andy Neville. You peruse these statements, and they are quite impressive. The balance sheet showed a debt-to-equity ratio of 0.10 and, for the year shown, the company reported net income of $2,424,240. The financial statements are not shown in comparison with amounts from other years. In addition, no significant note disclosures about inventory valuation, depreciation methods, loan agreements, etc. are available. Instructions Write a letter to Uncle Carlos explaining why it would be unwise to base an investment decision on the financial statements that he has provided to you. Be sure to explain why these financial statements are neither relevant nor representationally faithful.

What is the definition of fair value?

A spot weld was made using an arc-welding process. In a spot-welding operation, two 1/16-in-thick aluminum plates were joined. The melted metal formed a nugget that had a diameter of ¼ in. The operation required the power to be on for 4 sec. Assume the final nugget had the same thickness as the two aluminum plates (1/8 in thick), the heat transfer factor was 0.80 and the melting factor was 0.50. Determine the rate of heat generation that was required at the source to accomplish this weld.

The pretax financial income of Truttman Company differs from its taxable income throughout each of 4 years as follows. Pretax Taxable Year Financial Income Income Tax Rate 2014 $290,000 $180,000 35% 2015 320,000 225,000 40% 2016 350,000 260,000 40% 2017 420,000 560,000 40% Pretax financial income for each year includes a nondeductible expense of $30,000 (never deductible for tax purposes). The remainder of the difference between pretax financial income and taxable income in each period is due to one depreciation temporary difference. No deferred income taxes existed at the beginning of 2014. Instructions (a) Prepare journal entries to record income taxes in all 4 years. Assume that the change in the tax rate to 40% was not enacted until the beginning of 2015. (b) Prepare the income statement for 2015, beginning with Income before income taxes.

Roland Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2013 for $10,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2014, new technology was introduced that would accelerate the obsolescence of Roland’s equipment. Roland’s controller estimates that expected future net cash flows on the equipment will be $6,300,000 and that the fair value of the equipment is $5,600,000. Roland intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Roland uses straightline depreciation. Instructions (a) Prepare the journal entry (if any) to record the impairment at December 31, 2014. (b) Prepare any journal entries for the equipment at December 31, 2015. The fair value of the equipment at December 31, 2015, is estimated to be $5,900,000. (c) Repeat the requirements for (a) and (b), assuming that Roland intends to dispose of the equipment and that it has not been disposed of as of December 31, 2015.

In each of the following independent cases, determine the taxpayer’s filing status and the number of personal and dependency exemptions the taxpayer is allowed to claim. a.Alexandra is a blind widow (spouse died five years ago) who provides a home for her 18-year-old nephew, Newt.Newt’s parents are dead, and so Newt supports himself.Newt’s gross income is $5,000.

Distinguish earned income from unearned income, and provide an example of each.

Why are historical and international comparisons of deficit and debt measures best presented as proportions of GDP?

The part dimension for a certain injection molded part made of polycarbonate is specified as 3.75 in. Compute the corresponding dimension to which the mold cavity should be machined, using the value of shrinkage given in Table 13.1.

A solid cube of aluminum with each side = 1.0 m is converted into metallic powders of spherical shape by gas atomization. How much total surface area is added by the process if the diameter of each particle is 100 microns (assume that all particles are the same size)?

There are two basic types of friction welding (FRW). Describe and distinguish the two types.

A cup-shaped part is backward extruded from an aluminum slug that is 50 mm in diameter. The final dimensions of the cup are: OD = 50 mm, ID = 40 mm, height = 100 mm, and thickness of base = 5 mm. Determine (a) extrusion ratio, (b) shape factor, and (c) height of starting slug required to achieve the final dimensions. (d) If the metal has flow curve parameters K = 400 MPa and n = 0.25, and the constants in the Johnson extrusion strain equation are: a = 0.8 and b = 1.5, determine the extrusion force.

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.