Question & Answer

In 2014, Bailey Corporation discovered that equipment purchased on January 1, 2012, for $50,000 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 30%. Prepare Bailey’s 2014 journal entry to correct the error.

Consider a discussion during FOMC meetings in which there is a weak economy and a war, with potential major damage to oil wells. Explain why this possible effect would have received much attention at the FOMC meetings. If this possibility was perceived to be highly likely at the time of the meetings, explain how it may have complicated the decision about monetary policy at that time. Given the conditions stated in this question, would you suggest that the Fed use a restrictive monetary policy or a stimulative monetary policy? Support your decision logically and acknowledge any adverse effects of your decision. (LO4)

Lauren’s basis in Driftwood Partnership is $510,000. Driftwood distributes all the land to Lauren in complete liquidation of her partnership interest. The partnership reports the following balance sheet just before the distribution: Assets: Tax Basis FMV Cash $ 370,000 $ 370,000 Stock (investment) 910,000 370,000 Land 250,000 370,000    Totals $1, 530,000 $ 1,110,000 Liabilities and capital: Capital- Esteban $ 510,000 - Kylie 510,000 - Lauren 510,000   Totals $ 1,530,000 a. What are the amount and character of Lauren’s recognized gain or loss? b. If Driftwood does not have a §754 election in place, what is the amount of the special basis adjustment, if any?

What will happen to the demand for capital services and the equilibrium rental if the price of some other factor, say labour, changes? Assume that wage rates fall. Trace through the effects on a three-section diagram like that of Figure 10.13. (Clue: a fall in wages will have two significant effects: it will reduce costs and hence the price of the product, so that more will be sold; and it will make labour cheaper relative to capital. How will these two things affect the demand for capital?)

Much of the work at the Cut-Anything Company involves cutting and forming of flat sheets of fiber-glass for the pleasure boat industry. Manual methods based on portable saws are currently used to perform the cutting operation, but production is slow and scrap rates are high. The foreman says the company should invest in a plasma arc cutting machine, but the plant manager thinks it would be too expensive. What do you think? Justify your answer by indicating the characteristics of the process that make PAC attractive or unattractive in this application.

Which of the above assumptions do you think would be correct in each of the following cases?                (a)  Supermarket checkout operators.                (b)  Agricultural workers.                (c)  Crane operators.                (d)  Economics teachers.                (e)  Call-centre workers.                (f)   Professional footballers.                (g)  Bar workers.

When is revenue recognized in the following situations:(a) Revenue from selling products? (b) Revenue from services performed? (c) Revenue from permitting others to use enterprise assets? (d) Revenue from disposing of assets other than products?

Slaton Corporation traded a used truck for a new truck. The used truck cost $20,000 and has accumulated depreciation of $17,000. The new truck is worth $35,000. Slaton also made a cash payment of $33,000. Prepare Slaton’s entry to record the exchange. (The exchange has commercial substance.)

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.”

You have just started work for Warren Co. as part of the controller’s group involved in current financial reporting problems. Jane Henshaw, controller for Warren, is interested in your accounting background because the company has experienced a series of financial reporting surprises over the last few years. Recently, the controller has learned from the company’s auditors that there is authoritative literature that may apply to its investment in securities. She assumes that you are familiar with this pronouncement and asks how the following situations should be reported in the financial statements. Situation 1: Trading securities in the current assets section have a fair value that is $4,200 lower than cost. Situation 2: A trading security whose fair value is currently less than cost is transferred to the availablefor- sale category. Situation 3: An available-for-sale security whose fair value is currently less than cost is classified as noncurrent but is to be reclassified as current. Situation 4: A company’s portfolio of available-for-sale securities consists of the common stock of one company. At the end of the prior year, the fair value of the security was 50% of original cost, and this reduction in fair value was reported as an other than temporary impairment. However, at the end of the current year, the fair value of the security had appreciated to twice the original cost. Situation 5: The company has purchased some convertible debentures that it plans to hold for less than a year. The fair value of the convertible debentures is $7,700 below its cost. Instructions What is the effect upon carrying value and earnings for each of the situations above? Assume that these situations are unrelated.

Explain the difference between weak-form, semistrongform, and strong-form efficiency. Which of these forms of efficiency is most difficult to test? Which is most likely to be refuted? Explain how to test weakform efficiency in the stock market. (LO6)

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.

Why do we get less consumer surplus from goods where our demand is relatively elastic?

Why are single station assembly cells generally not suited to high-production jobs?

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.

What are the general rules for measuring and recognizing gain or loss by a debt extinguishment with modification?

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?

Why is it necessary to develop a definitional framework for the basic elements of accounting?

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?

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?

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.