Question & Answer

At the beginning of 2014, Aristotle Company acquired a mine for $970,000. Of this amount, $100,000 was ascribed to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists have indicated that approximately 12,000,000 units of the ore appear to be in the mine. Aristotle incurred $170,000 of development costs associated with this mine prior to any extraction of minerals. It also determined that the fair value of its obligation to prepare the land for an alternative use when all of the mineral has been removed was $40,000. During 2014, 2,500,000 units of ore were extracted and 2,100,000 of these units were sold. Instructions Compute the following. (a) The total amount of depletion for 2014. (b) The amount that is charged as an expense for 2014 for the cost of the minerals sold during 2014.

Reveille Corporation experienced a complete loss of its lumber mill as the result of a fire. The company received $2 million from the insurance company. Rather than rebuild, Reveille decided to distribute the $2 million to its two shareholders. No stock was exchanged in return.  Under what conditions will the distribution meet the requirements to be treated as a partial liquidation and not a dividend?  Why does it matter to the shareholders?

What are two methods of recording accounts receivable transactions when a cash discount situation is involved? Which is more theoretically correct? Which is used in practice more of the time? Why?

Laserwords Inc. is a book distributor that had been operating in its original facility since 1987. The increase in certification programs and continuing education requirements in several professions has contributed to an annual growth rate of 15% for Laserwords since 2009. Laserwords’ original facility became obsolete by early 2014 because of the increased sales volume and the fact that Laserwords now carries CDs in addition to books. On June 1, 2014, Laserwords contracted with Black Construction to have a new building constructed for $4,000,000 on land owned by Laserwords. The payments made by Laserwords to Black Construction are shown in the schedule below. Date Amount July 30, 2014 $ 900,000 January 30, 2015 1,500,000 May 30, 2015 1,600,000 Total payments $4,000,000 Construction was completed and the building was ready for occupancy on May 27, 2015. Laserwords had no new borrowings directly associated with the new building but had the following debt outstanding at May 31, 2015, the end of its fiscal year. 10%, 5-year note payable of $2,000,000, dated April 1, 2011, with interest payable annually on April 1. 12%, 10-year bond issue of $3,000,000 sold at par on June 30, 2007, with interest payable annually on June 30. Instructions For each of the four independent situations, prepare the journal entries to record the exchange on the booksof each company.

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.

Carlos Arruza Company exchanged equipment used in its manufacturing operations plus $3,000 in cash for similar equipment used in the operations of Tony LoBianco Company. The following information pertains to the exchange. Carlos Arruza Co. Tony LoBianco Co. Equipment (cost) $28,000 $28,000 Accumulated depreciation 19,000 10,000 Fair value of equipment 12,500 15,500 Cash given up 3,000 Instructions (a) Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance. (b) Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange has commercial substance.

Murphy Mining Company recently purchased a quartz mine that it intends to work for the next 10 years. According to state environmental laws, Murphy must restore the mine site to its original natural prairie state after it ceases mining operations at the site. To properly account for the mine, Murphy must estimate the fair value of this asset retirement obligation. This amount will be recorded as a liability and added to the value of the mine on Murphy’s books. (You will learn more about these asset retirement obligations in Chapters 10 and 13.) There is no active market for retirement obligations such as these, but Murphy has developed the following cash flow estimates based on its prior experience in mining-site restoration. It will take 3 years to restore the mine site when mining operations cease in 10 years. Each estimated cash outflow reflects an annual payment at the end of each year of the 3-year restoration period. Instructions (a) What is the estimated fair value of Murphy’s asset retirement obligation? Murphy determines that the appropriate discount rate for this estimation is 5%. Round calculations to the nearest dollar. (b) Is the estimate developed for part (a) a Level 1 or Level 3 fair value estimate? Explain. Restoration Estimated Probability Cash Outflow Assessment $15,000 10% 22,000 30% 25,000 50% 30,000 10%

A carbon steel bar with 7.64 in diameter has a tensile strength of 65,000 lb/in2 and a shear strength of 45,000 lb/in2 . The diameter is reduced using a turning operation at a cutting speed of 400 ft/min. The feed is 0.011 in/rev and the depth of cut is 0.120 in. The rake angle on the tool in the direction of chip flow is 13°. The cutting conditions result in a chip ratio of 0.52. Using the orthogonal model as an approximation of turning, determine (a) the shear plane angle, (b) shear force, (c) cutting force and feed force, and (d) coefficient of friction between the tool and chip.

Imagine that you are an ambassador of a developing country at an international conference. What would you try to persuade the rich countries to do in order to help you and other poor countries overcome the debt problem? How would you set about persuading them that it was in their own interests to help you?

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.

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?

Presented below are two different situations related to Mckee Corporation’s debt obligations. Mckee’s next financial reporting date is December 31, 2014. The financial statements are authorized for issuance on March 1, 2015. 1. Mckee has a long-term obligation of $400,000, which is maturing over 4 years in the amount of $100,000 per year. The obligation is dated November 1, 2014, and the first maturity date is November 1, 2015. 2. Mckee has a short-term obligation due February 15, 2015. Its lender agrees to extend the maturity date of this loan to February 15, 2017. The agreement for extension is signed on January 15, 2015.

A shaper is used to reduce the thickness of a 50 mm part to 45 mm. The part is made of cast iron and has a tensile strength of 270 MPa and a Brinell hardness of 165 HB. The starting dimensions of the part are 750 mm x 450 mm x 50 mm. The cutting speed is 0.125 m/sec and the feed is 0.40mm/pass. The shaper ram is hydraulically driven and has a return stroke time that is 50% of the cutting stroke time. An extra 150 mm must be added before and after the part for acceleration and deceleration to take place. Assuming the ram moves parallel to the long dimension of the part, how long will it take to machine?

This year Lloyd, a single taxpayer, estimates that his tax liability will be $10,000.  Last year, his total tax liability was $15,000.  He estimates that his tax withholding from his employer will be $7,800.   a. Is Lloyd required to increase his withholding or make estimated tax payments this year to avoid the underpayment penalty?  If so, how much?

Presented below is information related to Dino Radja Company. Ending Inventory Price Date (End-of-Year Prices) Index December 31, 2011 $ 80,000 100 December 31, 2012 115,500 105 December 31, 2013 108,000 120 December 31, 2014 122,200 130 December 31, 2015 154,000 140 December 31, 2016 176,900 145 Instructions Compute the ending inventory for Dino Radja Company for 2011 through 2016 using the dollar-value LIFO method.

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

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.

Presented below is information related to James Garfield Corp. July 1 James Garfi eld Corp. sold to Warren Harding Co. merchandise having a sales price of $8,000 with terms 2/10, net/60. Garfi eld records its sales and receivables net. 5 Accounts receivable of $9,000 (gross) are factored with Andrew Jackson Credit Corp. without recourse at a fi nancing charge of 9%. Cash is received for the proceeds; collections are handled by the fi nance company. (These accounts were all past the discount period.) 9 Specifi c accounts receivable of $9,000 (gross) are pledged to Alf Landon Credit Corp. as security for a loan of $6,000 at a fi nance charge of 6% of the amount of the loan. The fi nance company will make the collections. (All the accounts receivable are past the discount period.) Dec. 29 Warren Harding Co. notifi es Garfi eld that it is bankrupt and will pay only 10% of its account. Give the entry to write off the uncollectible balance using the allowance method. (Note: First record the increase in the receivable on July 11 when the discount period passed.) Instructions Prepare all necessary entries in general journal form for Garfield Corp.

If a retailer buys a product from a wholesaler for £80 and sells it to a consumer for £100, then the £20 of value that has been added will go partly in wages, partly in rent and partly in profits. Thus £20 of income has been generated at the retail stage. But the good actually contributes a total of £100 to GDP. Where then is the remaining £80 worth of income recorded?

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.

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.

According to the video, what are four possible functions of the electrodes in resistance spot welding?

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