Question & Answer

Nancy Tercek, the financial vice president, and Margaret Lilly, the controller, of Romine Manufacturing Company are reviewing the financial ratios of the company for the years 2014 and 2015. The financial vice president notes that the profit margin on sales ratio has increased from 6% to 12%, a hefty gain for the 2-year period. Tercek is in the process of issuing a media release that emphasizes the efficiency of Romine Manufacturing in controlling cost. Margaret Lilly knows that the difference in ratios is due primarily to an earlier company decision to reduce the estimates of warranty and bad debt expense for 2015. The controller, not sure of her supervisor’s motives, hesitates to suggest to Tercek that the company’s improvement is unrelated to efficiency in controlling cost. To complicate matters, the media release is scheduled in a few days. Instructions (a) What, if any, is the ethical dilemma in this situation? (b) Should Lilly, the controller, remain silent? Give reasons. (c) What stakeholders might be affected by Tercek’s media release? (d) Give your opinion on the following statement and cite reasons: “Because Tercek, the vice president, is most directly responsible for the media release, Lilly has no real responsibility in this matter.”

Distinguish among the following: (1) a general checking account, (2) an imprest bank account, and (3) a lockbox account.

On December 31, 2014, Firth Company borrowed $62,092 from Paris Bank, signing a 5-year, $100,000 zero-interest-rate note. The note was issued to yield 10% interest. Unfortunately, during 2016, Firth began to experience financial difficulty. As a result, at December 31, 2016, Paris Bank determined that it was probable that it would collect only $75,000 at maturity. The market rate of interest on loans of this nature is now 11%. Instructions (a) Prepare the entry (if any) to record the impairment of the loan on December 31, 2016, by Paris Bank. (b) Prepare the entry on March 31, 2017, if Paris learns that Firth will be able to repay the loan under the original terms.

On three diagrams like Figure 7.8, illustrate the effect on price, quantity and profit of each of the following: (a) a rise in demand; (b) a rise in fixed costs; (c) a rise in variable costs. In each case show only the AR, MR, AC, and MC curves.

{Planning} Clark owns stock in BCS Corporation that he purchased in January of the current year.  The stock has appreciated significantly during the year.  It is now December of the current year, and Clark is deciding whether or not he should sell the stock.  What tax and nontax factors should Clark consider before making the decision on whether to sell the stock now?

Paris was happy to provide a contribution to her friend Nicole’s campaign for mayor, especially after she learned that charitable contributions are tax deductible.     a.  Use an available tax service to determine whether Paris can deduct this contribution.   b.  Write a memo communicating the results of your research.

What is thermal conductivity as a material property?

Question: Frederic Chopin Corporation is preparing its December 31, 2014, balance sheet. The following items may be reported as either a current or long-term liability. 1. On December 15, 2014, Chopin declared a cash dividend of $2.50 per share to stockholders of record on December 31. The dividend is payable on January 15, 2015. Chopin has issued 1,000,000 shares of common stock, of which 50,000 shares are held in treasury. 2. At December 31, bonds payable of $100,000,000 are outstanding. The bonds pay 12% interest every September 30 and mature in installments of $25,000,000 every September 30, beginning September 30, 2015. 3. At December 31, 2013, customer advances were $12,000,000. During 2014, Chopin collected $30,000,000 of customer advances; advances of $25,000,000 should be recognized in income. Instructions For each item above, indicate the dollar amounts to be reported as a current liability and as a long-term liability, if any.

Mancuso Corporation amended its pension plan on January 1, 2014, and granted $160,000 of prior service costs to its employees. The employees are expected to provide 2,000 service years in the future, with 350 service years in 2014. Compute prior service cost amortization for 2014.

Sofia (single) is a 50 percent owner in Beehive LLC (taxed as a partnership). Sofia  does not do any work for Beehive. Beehive LLC reported $600,000 of taxable business income for the year. Before considering her 50 percent business income allocation from Beehive and the self-employment tax deduction (if any), Sofia’s adjusted gross income is $150,000 (all employee salary). Sofia has $35,000 in itemized deductions. Answer the following questions for Sofia. a. What is Sofia’s self-employment tax liability? b. Assuming the income allocated to Sofia is not from a specified service trade or business, what is Sofia’s deduction for qualified business income? Assume Sofia’s share of wages paid by Beehive LLC is $130,000 and her share in the unadjusted basis of qualified property used by Beehive was $300,000. c. What is Sofia’s net investment income tax liability (assume no investment expenses)? d. What is Sofia’s additional Medicare tax liability?

Recall the various strategies that rival oligopolists can adopt. What parallels there are in union and management strategies?

Target in 2012 reported net income of $2.9 billion, net sales of $69.8 billion, and average total assets of $45.2 billion. What is Target’s asset turnover? What is Target’s return on assets?

Hillsborough Co. has an available-for-sale investment in the bonds of Schuyler Corp. with a carrying (and fair) value of $70,000. Hillsborough determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to $60,000. It is determined that this loss in value is other-thantemporary. Prepare the journal entry, if any, to record the reduction in value.

In the current year, LeSean (age 51 and single) has earned income of $3,000. He also has $30,000 of unearned (capital gain) income. a. If he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution LeSean can make for the current year? b. If he does participate in an employer-sponsored plan, what is the maximum deductible IRA contribution LeSean can make for the current year? c. If he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution LeSean can make for the current year if he has earned income of $10,000?

Presented below are changes in all the account balances of Fritz Reiner Furniture Co. during the current year, except for retained earnings. Increase Increase (Decrease) (Decrease) Cash $ 79,000 Accounts Payable $ (51,000) Accounts Receivable (net) 45,000 Bonds Payable 82,000 Inventory 127,000 Common Stock 125,000 Investments (47,000) Paid-In Capital in Excess of Par—Common Stock 13,000 Instructions Compute the net income for the current year, assuming that there were no entries in the Retained Earnings account except for net income and a dividend declaration of $19,000 which was paid in the current year.

How do two taxpayers determine who has priority to claim the dependency exemption for a qualifying child of both taxpayers when neither taxpayer is a parent of the child (assume the child does not qualify as a qualifying child for either parent)?How do parents determine who gets to deduct the dependency exemption for a qualifying child of both parents when the parents are divorced or file separate returns

Hugh has the choice between investing in a City of Heflin bond at 6 percent or a Surething bond at 9 percent.  Assuming that both bonds have the same nontax characteristics and that Hugh has a 40 percent marginal tax rate, in which bond should he invest?

Shown below is the liabilities and stockholders’ equity section of the balance sheet for Jana Kingston Company and Mary Ann Benson Company. Each has assets totaling $4,200,000. Jana Kingston Co. Mary Ann Benson Co. Current liabilities $ 300,000 Current liabilities $ 600,000 Long-term debt, 10% 1,200,000 Common stock ($20 par) 2,900,000 Common stock ($20 par) 2,000,000 Retained earnings (Cash Retained earnings (Cash dividends, $328,000) 700,000 dividends, $220,000) 700,000 $4,200,000 $4,200,000 For the year, each company has earned the same income before interest and taxes. Jana Kingston Co. Mary Ann Benson Co. Income before interest and taxes $1,200,000 $1,200,000 Interest expense 120,000 –0– 1,080,000 1,200,000 Income taxes (45%) 486,000 540,000 Net income $ 594,000 $ 660,000 At year end, the market price of Kingston’s stock was $101 per share, and Benson’s was $63.50. Instructions (a) Which company is more profitable in terms of return on total assets? (b) Which company is more profitable in terms of return on common stock equity? (c) Which company has the greater net income per share of stock? Neither company issued or reacquired shares during the year. (d) From the point of view of net income, is it advantageous to the stockholders of Jana Kingston Co. to have the long-term debt outstanding? Why? (e) What is the book value per share for each company?

Explain how some high-frequency traders use a form of front running to capitalize on faster access to specific markets. (LO3)

Suppose you asked your favorite AI learning tool “Do stock redemptions have an impact on a corporation's earnings and profits?” and the AI tool provided the following response:

The housing for a certain machinery product is made of two components, both aluminum castings. The larger component has the shape of a dish sink, and the second component is a flat cover that is attached to the first component to create an enclosed space for the machinery parts. Sand casting is used to produce the two castings, both of which are plagued by defects in the form of misruns and cold shuts. The foreman complains that the parts are too thin, and that is the reason for the defects. However, it is known that the same components are cast successfully in other foundries. What other explanation can be given for the defects?

Explain the difference between the voting-interest model and the risk-and-reward model used for consolidation.

The following article appeared in the Wall Street Journal. washington—The Securities and Exchange Commission staff issued guidelines for companies grappling with the problem of dividing up their business into industry segments for their annual reports. An industry segment is defined by the Financial Accounting Standards Board as a part of an enterprise engaged in providing a product or service or a group of related products or services primarily to unaffiliated customers for a profit. Although conceding that the process is a “subjective task” that “to a considerable extent, depends on the judgment of management,” the SEC staff said companies should consider . . . various factors . . . to determine whether products and services should be grouped together or reported as segments. Instructions (a) What does financial reporting for segments of a business enterprise involve? (b) Identify the reasons for requiring financial data to be reported by segments. (c) Identify the possible disadvantages of requiring financial data to be reported by segments. (d) Identify the accounting difficulties inherent in segment reporting.

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?

The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://corporate.marksandspencer.com/documents/publications/2012/ Annual_Report_2012. Instructions Refer to M&S’s financial statements and the accompanying notes to answer the following questions. (a) Does M&S report any intangible assets and goodwill in its financial statements and accompanying notes? Briefly explain. (b) How much selling and marketing expenses does M&S report in 2011 and 2012? Briefly discuss the significance of these expenses to M&S’s operating results.