Question & Answer

Distinguish between a normal good, an inferior good and a Giffen good. Use indifference curves to illustrate your answer.

The life of a business is divided into specific time periods, usually a year, to measure results of operations for each such time period and to portray financial conditions at the end of each period. (a) This practice is based on the accounting assumption that the life of the business consists of a series of time periods and that it is possible to measure accurately the results of operations for each period. Comment on the validity and necessity of this assumption. (b) What has been the effect of this practice on accounting? What is its relation to the accrual system? What influence has it had on accounting entries and methodology?

Presently, the profession requires that earnings per share be disclosed on the face of the income statement. What are some disadvantages of reporting ratios on the financial statements?

How do you think the shape of the yield curve for commercial paper and other money market instruments compares to the yield curve for Treasury securities? Explain your logic. (LO1)

A cylindrical workpart 200 mm in diameter and 700 mm long is to be turned in an engine lathe. Cutting speed = 2.30 m/s, feed = 0.32 mm/rev, and depth of cut = 1.80 mm. Determine (a) cutting time, and (b) metal removal rate.

What is net interest? Identify the elements of net interest and explain how they are computed.

Hart, an individual, bought an asset for $500,000 and has claimed $100,000 of depreciation deductions against the asset. Hart has a marginal tax rate of 32 percent. Answer the questions presented in the following alternative scenarios (assume Hart had no property transactions other than those described in the problem): a. What are the amount and character of Hart’s recognized gain or loss if the asset is tangible personal property sold for $450,000?  What effect does the sale have on Hart’s tax liability for the year?  b. What are the amount and character of Hart’s recognized gain or loss if the asset is tangible personal property sold for $550,000?  What effect does the sale have on Hart’s tax liability for the year?  c. What are the amount and character of Hart’s recognized gain or loss if the asset is tangible personal property sold for $350,000?  What effect does the sale have on Hart’s tax liability for the year?  d. What are the amount and character of Hart’s recognized gain or loss if the asset is a nonresidential building sold for $450,000?  What effect does the sale have on Hart’s tax liability for the year?  e. Now assume that Hart is a C corporation. What are the amount and character of its recognized gain or loss if the asset is a nonresidential building sold for $450,000?  What effect does the sale have on Hart’s tax liability for the year (assume a 21 percent tax rate)?  f. Assuming that the asset is real property, which entity type should be used to minimize the taxes paid on real estate gains?

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.

The following data relate to the operation of Kramer Co.’s pension plan in 2015. The pension worksheet for 2014 is provided in P20-10. Service cost $59,000 Actual return on plan assets 32,000 Amortization of prior service cost 28,000 Annual contributions 51,000 Benefi ts paid retirees 27,000 Average service life of all employees 25 years For 2015, Kramer will use the same assumptions as 2014 for the expected rate of returns on plan assets. The settlement rate for 2015 is 10%. Instructions (a) Prepare a pension worksheet for 2015 and accompanying computations and amortization of the loss, if any, in 2015 using the corridor approach. (b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31. (c) Indicate the pension amounts reported in the financial statements.

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?

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:

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)

What are the arguments for giving separate accounting recognition to the conversion feature of debentures?

At December 31, 2014, Suffolk Corporation had an estimated warranty liability of $105,000 for accounting purposes and $0 for tax purposes. (The warranty costs are not deductible until paid.) The effective tax rate is 40%. Compute the amount Suffolk should report as a deferred tax asset at December 31, 2014.

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.

Explain why private equity funds use a very high degree of financial leverage, and how this affects their risk and potential return on investment. (LO1)

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.

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.

Using the facts in problem 37, if Campbell earns an additional $15,000 of taxable income, what is her marginal tax rate on this income?  What is her marginal rate if, instead, she had $15,000 of additional deductions?

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?

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)?