Question & Answer

Explain why some hedge funds failed as a result of the credit crisis of 2008–2009. (LO4)

1.       During times of significant organizational change, such as downsizing or a pandemic, the grapevine becomes more active as anxious employees share organizational news and rumors. As a manager, what communication strategies would you employ during a time of uncertainty in the workplace? What are the advantages and disadvantages of gossip during a time of uncertainty?

Using the availability heuristic, explain hindsight bias.

Select a European country other than the UK and compare its regional and urban policy with that of the UK.

What are the three steps in the LIGA process?

Should all developing countries aim over the long term to become exporters of manufactured products?

Candice Willis will invest $30,000 today. She needs $150,000 in 21 years. What annual interest rate must she earn?

1.    : The technique of stakeholder mapping lets managers classify which stakeholders they will consider more important and will invest more time to satisfy. Is it appropriate for management to define some stakeholders as more important than others? Explain.

What are the two ways in which a bank should diversify its loans? Why? Is international diversification of loans a viable strategy for dealing with credit risk? Defend your answer. (LO4)

Why are trading halts sometimes imposed on particular stocks? (LO4)

What are the criteria by which machinability is commonly assessed in a production machining operation?

What is so special about the superalloys? What distinguishes them from other alloys?

How might the reimbursement of a portion of an employee expense influence the deductibility of the expense for the employee?

Sandra would like to organize LAB (a legal corporation) as either an S corporation or a C corporation for tax purposes. In either form, the entity is expected to generate an 8 percent annual before-tax return on a $500,000 investment. Sandra’s marginal income tax rate is 37 percent and her tax rate on qualified dividends and net capital gains is 20 percent. LAB’s income is not qualified business income (QBI) so Sandra is not allowed to claim the QBI deduction. Assume that LAB will distribute all of its earnings after entity-level taxes every year. Ignore the additional Medicare tax and the net investment income tax when computing your answers.   a. How much cash after taxes would Sandra receive from her investment in the first year if LAB is organized as either an S corporation or a C corporation?  b. What is the overall tax rate on LAB’s income in first year if LAB is organized as an S corporation or as a C corporation? c. At a high level, explain the differences between entity types in after-tax cash flow and overall tax rate on business income.

How will competition between growth-maximising firms benefit the consumer?

Explain the concept of cash flow underwriting. (LO4)

Performance evaluation and sustainability balanced scorecard Brewster House is a not-for-profit shelter for the homeless. Lately funding has decreased, but the demand for overnight shelter has increased. In cold weather, clients are turned away because the shelter is full. The director believes that the current capacity could be used more efficiently. No one has taken time to analyse the physical layout of the shelter and current use of space. Several rooms are used for storage that could probably be used for temporary housing. The stored boxes need to be sorted and moved. Volunteers currently assign beds and manage overnight housing, because the director is busy with fundraising. Volunteers work just a few shifts each week, so no one has taken responsibility for coordinating improvements in the services offered. The director is considering whether to implement a balanced scorecard to focus the attention of all volunteers on areas that need improvement.   Brewster receives funds from several sources, including a set annual budget from the local council and direct donations from supporters. The director develops a budget each year based on expected funding but she cannot precisely predict donations. The budget is used primarily to justify funding requests submitted to the council.   The director has asked a group of accounting students from the local university to evaluate operations and recommend whether the entity should develop a balanced scorecard. She cannot give bonuses based on the measures, but she wonders whether developing and monitoring performance measures would encourage the volunteers to increase the use of capacity. She also wonders whether some information from the balanced scorecard could be used to show donors the effectiveness of the operations in achieving social goals.   Required (a) Describe how the balanced scorecard could be developed to help demonstrate the social sustainability goals. (b) Provide details of sustainability-related measures for each scorecard perspective you have designed for Brewster House. (c) What issues would Brewster House management have to overcome to ensure a change in practice? (LO4 and 5)

Make out a case from a deep green perspective for rejecting the ‘social efficiency’ approach to the environment.

Identify the important reasons why metals are annealed.

] Megan and Matthew are equal partners in the J & J Partnership (calendar-year-end entity). On January 1 of the current year, they decide to liquidate the partnership. Megan’s basis in her partnership interest is $100,000, and Matthew’s is $35,000. The two partners receive identical distributions, with each receiving the following assets: Tax BasisFMV Cash $ 30,000 $ 30,000 Inventory 5,000 6,000 Land 500 1,000    Totals $ 35,500 $37,000 a. What are the amount and character of Megan’s recognized gain or loss? b. What is Megan’s basis in the distributed assets? c. What are the amount and character of Matthew’s recognized gain or loss? d. What is Matthew’s basis in the distributed assets?

Geiberger Corporation manufactures replicators. On January 1, 2014, it leased to Althaus Company a replicator that had cost $110,000 to manufacture. The lease agreement covers the 5-year useful life of the replicator and requires 5 equal annual rentals of $40,800 payable each January 1, beginning January 1, 2014. An interest rate of 12% is implicit in the lease agreement. Collectibility of the rentals is reasonably assured, and there are no important uncertainties concerning costs. Prepare Geiberger’s January 1, 2014, journal entries.

Quality of decisions Maria and Tracey became good friends while working at the same entity. Two years ago, they both decided to increase their savings so that they could eventually purchase homes. Each began by putting a portion of each month's salary into a savings account. At the end of the first year, they had each accumulated $4000. Because their savings accounts paid a very small interest rate, they decided to invest the savings to earn a higher rate of return. Maria and Tracey both hoped to save enough money to buy homes within five years.   Maria decided to take an investment course offered through the entity. The course taught her about different types of investments and strategies for investing. She then purchased and read an investment book to learn more. Maria learned that some investments are riskier than others, and that investors must balance risk against desired return. Higher risk leads to higher returns on average; but, higher risk could also lead to low returns or even loss. She also learned that investment advisers recommend diversifying risky investments. One way to diversify is to invest in mutual funds, which invest in many different organisations. Maria decided that she was willing to assume some risk, but was not comfortable with a high level. She decided to invest her $4,000 in a share market mutual fund. She read consumer reports to learn about different mutual funds, and selected a fund that invests conservatively in fairly stable companies. However, the share market did not do well in the first year. The value of her mutual fund at the end of a year was $4050.   Tracey talked with her boyfriend and other friends about how they invest. Her boyfriend’s cousin recommended investing in a start-up company that sells video games. He told her that the games were very popular with teenagers and that the company would probably be acquired, resulting in big gains for investors. This opportunity sounded good to Tracey, so she decided to invest her entire $4000 in the company’s shares. After 10 months, she was excited to learn that the company was being acquired. She received shares in the acquiring company in exchange for her original shares. At the end of the year, the market value of her shares was $8200.   Required Evaluate the quality of the investment decisions made by Maria and Tracey. Hint: Refer to figure 1.3 (on page 18). (a)          List the information used by Maria in making her investment decision. (b)          List the information used by Tracey in making her investment decision. (c)           Did Maria appear to use high-quality information? Explain. (d)          Did Tracey appear to use high-quality information? Explain. (e)           Describe Maria’s decision-making process. What did she do to explore her options? Did she appear to be biased? What were her priorities? How did she reach a conclusion? (f)           Describe Tracey’s decision-making process. What did she do to explore her options? Did she appear to be biased? What were her priorities? How did she reach a conclusion? (g)          Did Maria appear to use a high-quality decision-making process? Explain. (h)          Did Tracey appear to use a high-quality decision-making process? Explain. (i)            Given your analyses of the information and decision-making processes used by Maria and Tracey, which investor made a higher-quality decision? Explain.

Accounting for scrap You are helping a friend, Jonah, set up a new accounting system for a small start-up construction company. He specialises in custom, energy efficient homes that are built on a cost-plus basis. Cost-plus means that his customers pay a fixed percentage above the sum of direct and overhead costs.   As he goes through the accounts, Jonah asks why you set up a separate account for scrap. He does not believe that scrap should be recorded anywhere in his accounting system because it is worth little, and theft is no problem. He makes weekly trips to a recycling plant where he receives a small sum for the scrap. Most of the time Jonah is working on only one house and the scrap is only for that house. However, once in a while he is working on several houses, and the scrap for all of the houses is recycled at once.   Required (a)     Explain the two ways that scrap can be recorded in a job costing system. (b)     Choose the appropriate method for Jonah and explain your choice. (c)      Suppose you are a prospective homeowner. Explain to Jonah why you believe the revenue from scrap associated with your home should be recorded as a reduction in your costs rather than his overall costs. (d)     Write a brief (and diplomatic) paragraph to convince Jonah that he needs to account for the revenues from scrap.

For 2012, Campbell Soup Company had pension expense of $73 million and contributed $71 million to the pension fund. Prepare Campbell Soup Company’s journal entry to record pension expense and funding.

What are some ways that a parent could effectively shift income to a child? What are some of the disadvantages of these methods?