Question & Answer

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.)

How do general and limited partners treat their share of ordinary business income for self-employment tax purposes?

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.

The records for the Clothing Department of Sharapova’s Discount Store are summarized below for the month of January. Inventory, January 1: at retail $25,000; at cost $17,000 Purchases in January: at retail $137,000; at cost $82,500 Freight-in: $7,000 Purchase returns: at retail $3,000; at cost $2,300 Transfers in from suburban branch: at retail $13,000; at cost $9,200 Net markups: $8,000 Net markdowns: $4,000 Inventory losses due to normal breakage, etc.: at retail $400 Sales revenue at retail: $95,000 Sales returns: $2,400 Instructions (a) Compute the inventory for this department as of January 31, at retail prices. (b) Compute the ending inventory using lower-of-average-cost-or-market.

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?

Under what conditions is it appropriate for a business to use the composite method of depreciation for its plant assets? What are the advantages and disadvantages of this method?

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.

Presented below is information related to Langston Hughes Corporation. Price Index LIFO Cost Retail Inventory on December 31, 2014, when dollar-value LIFO is adopted 100 $36,000 $ 74,500 Inventory, December 31, 2015 110 ? 100,100 Instructions Compute the ending inventory under the dollar-value LIFO method at December 31, 2015. The cost-toretail ratio for 2015 was 60%.

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.

Explain the process by which the price of houses would rise if there were a shortage.

What properties determine the quality of a sand mold for sand casting?

In a laser beam welding process, what is the quantity of heat per unit time (J/sec) that is transferred to the material if the heat is concentrated in circle with a diameter of 0.2 mm? Assume the power density provided in Table 29.1.

Before Gordon Corporation engages in the treasury stock transactions listed below, its general ledger reflects, among others, the following account balances (par value of its stock is $30 per share). Paid-in Capital in Excess of Par—Common Stock Common Stock Retained Earnings $99,000 $270,000 $80,000 Instructions Record the treasury stock transactions (given below) under the cost method of handling treasury stock; use the FIFO method for purchase-sale purposes. (a) Bought 380 shares of treasury stock at $40 per share. (b) Bought 300 shares of treasury stock at $45 per share. (c) Sold 350 shares of treasury stock at $42 per share. (d) Sold 110 shares of treasury stock at $38 per share.

You are asked to travel to Milwaukee to observe and verify the inventory of the Milwaukee branch of one of your clients. You arrive on Thursday, December 30, and find that the inventory procedures have just been started. You spot a railway car on the sidetrack at the unloading door and ask the warehouse superintendent, Buck Rogers, how he plans to inventory the contents of the car. He responds, “We are not going to include the contents in the inventory.” Later in the day, you ask the bookkeeper for the invoice on the carload and the related freight bill. The invoice lists the various items, prices, and extensions of the goods in the car. You note that the carload was shipped December 24 from Albuquerque, f.o.b. Albuquerque, and that the total invoice price of the goods in the car was $35,300. The freight bill called for a payment of $1,500. Terms were net 30 days. The bookkeeper affirms the fact that this invoice is to be held for recording in January. Instructions (a) Does your client have a liability that should be recorded at December 31? Discuss. (b) Prepare a journal entry(ies), if required, to reflect any accounting adjustment required. Assume a perpetual inventory system is used by your client. (c) For what possible reason(s) might your client wish to postpone recording the transaction?

Cheng Company traded a used truck for a new truck. The used truck cost $30,000 and has accumulated depreciation of $27,000. The new truck is worth $37,000. Cheng also made a cash payment of $36,000. Prepare Cheng’s entry to record the exchange. (The exchange lacks commercial substance.)

What is wheel grade?

Why is the minimum point of the AVC curve at a lower level of output than the minimum point of the AC curve?

Ferraro, Inc. established a stock-appreciation rights (SAR) program on January 1, 2014, which entitles executives to receive cash at the date of exercise for the difference between the market price of the stock and the pre-established price of $20 on 5,000 SARs. The required service period is 2 years. The fair value of the SARs are determined to be $4 on December 31, 2014, and $9 on December 31, 2015. Compute Ferraro’s compensation expense for 2014 and 2015.

Drawing an indifference curve diagram that illustrates Giffen behaviour can be difficult. Given that the substitution effect of the price change must be relatively small, how do you draw the indifference curves: i.e. how bowed in towards the origin should they be?

Explain how a yield curve would shift in response to a sudden expectation of rising interest rates, according to the pure expectations theory. (LO3)

Assume the bonds in BE14-2 were issued at 103. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Colson Company records straight-line amortization semiannually.

Chelsea Finance Company receives floating inflow payments from its provision of floating-rate loans. Its outflow payments are fixed because of its recent issuance of long-term bonds. Chelsea is concerned that interest rates will decline in the future. Yet, it does not want to hedge its interest rate risk because it believes interest rates may increase. Recommend a solution to Chelsea’s dilemma. (LO1, LO2)

45. Shauna Coleman is single. She is employed as an architectural designer for Streamline Design (SD). Shauna wanted to determine her taxable income. She correctly calculated her AGI. However, she wasn’t sure how to compute the rest of her taxable income. She provided the following information with hopes that you could use it to determine her taxable income for 2024.

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.