Question & Answer

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

What impact does the financial accelerator have on the marginal propensity to consume domestically produced goods (mpcd)? How does this affect the IS curve?

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

Alladin Company purchased Machine #201 on May 1, 2014. The following information relating to Machine #201 was gathered at the end of May. Price $85,000 Credit terms 2/10, n/30 Freight-in $ 800 Preparation and installation costs $ 3,800 Labor costs during regular production operations $10,500 It is expected that the machine could be used for 10 years, after which the salvage value would be zero. Alladin intends to use the machine for only 8 years, however, after which it expects to be able to sell it for $1,500. The invoice for Machine #201 was paid May 5, 2014. Alladin uses the calendar year as the basis for the preparation of financial statements. Instructions (a) Compute the depreciation expense for the years indicated using the following methods. (Round to thenearest dollar.) (1) Straight-line method for 2014. (2) Sum-of-the-years’-digits method for 2015. (3) Double-declining-balance method for 2014. (b) Suppose Kate Crow, the president of Alladin, tells you that because the company is a new organization, she expects it will be several years before production and sales reach optimum levels. She asks you to recommend a depreciation method that will allocate less of the company’s depreciation expense to the early years and more to later years of the assets’ lives. What method would you recommend?

Hawkins Construction Co. has a $60 million contract to construct a highway overpass and cloverleaf. The total estimated cost for the project is $50 million. Costs incurred in the first year of the project are $8 million. Hawkins Construction Co. appropriately uses the percentageof- completion method. How much revenue and gross profit should Hawkins recognize in the first year of the project?

When a taxpayer works as an employee and as a self-employed independent contractor during the year, how does the taxpayer determine their employment and self-employment taxes payable?

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

What is the opportunity cost of holding money? Is it the real or the nominal rate of interest? Explain.

Describe the differences between a proportional, progressive, and regressive tax rate structure.

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

P.1 What would cause (a) a steep DAD curve; (b) a gently sloping DAD curve? P.2 Compare the short-run and long-run effects of (i) a temporary adverse supply shock and (ii) a permanent supply reduction under each of (a) and (b).

Explain the concept of cash flow underwriting. (LO4)

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.

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)

Conan O’Brien Logging and Lumber Company owns 3,000 acres of timberland on the north side of Mount Leno, which was purchased in 2002 at a cost of $550 per acre. In 2014, O’Brien began selectively logging this timber tract. In May 2014, Mount Leno erupted, burying the timberland of O’Brien under a foot of ash. All of the timber on the O’Brien tract was downed. In addition, the logging roads, built at a cost of $150,000, were destroyed, as well as the logging equipment, with a net book value of $300,000. At the time of the eruption, O’Brien had logged 20% of the estimated 500,000 board feet of timber. Prior to the eruption, O’Brien estimated the land to have a value of $200 per acre after the timber was harvested. O’Brien includes the logging roads in the depletion base. O’Brien estimates it will take 3 years to salvage the downed timber at a cost of $700,000. The timber can be sold for pulp wood at an estimated price of $3 per board foot. The value of the land is unknown, but must be considered nominal due to future uncertainties. Instructions (a) Determine the depletion cost per board foot for the timber harvested prior to the eruption of Mount Leno. (b) Prepare the journal entry to record the depletion prior to the eruption. (c) If this tract represents approximately half of the timber holdings of O’Brien, determine the amount of the extraordinary loss due to the eruption of Mount Leno for the year ended December 31, 2014.

Under what circumstances would a rightward shift in the DAD curve lead to a permanent increase in real national income?

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.

Bronson Paper Products purchased 10,000 acres of forested timberland in March 2014. The company paid $1,700 per acre for this land, which was above the $800 per acre most farmers were paying for cleared land. During April, May, June, and July 2014, Bronson cut enough timber to build roads using moveable equipment purchased on April 1, 2014. The cost of the roads was $250,000, and the cost of the equipment was $225,000; this equipment was expected to have a $9,000 salvage value and would be used for the next 15 years. Bronson selected the straight-line method of depreciation for the moveable equipment. Bronson began actively harvesting timber in August and by December had harvested and sold 540,000 board feet of timber of the estimated 6,750,000 board feet available for cutting. In March 2015, Bronson planted new seedlings in the area harvested during the winter. Cost of planting these seedlings was $120,000. In addition, Bronson spent $8,000 in road maintenance and $6,000 for pest spraying during calendar-year 2015. The road maintenance and spraying are annual costs. During 2015, Bronson harvested and sold 774,000 board feet of timber of the estimated 6,450,000 board feet available for cutting. In March 2016, Bronson again planted new seedlings at a cost of $150,000, and also spent $15,000 on road maintenance and pest spraying. During 2016, the company harvested and sold 650,000 board feet of timber of the estimated 6,500,000 board feet available for cutting. Instructions Compute the amount of depreciation and depletion expense for each of the 3 years (2014, 2015, and 2016). Assume that the roads are usable only for logging and therefore are included in the depletion base.

Benjaminrecently bought a truck in Alabama for his business in Georgia.  What different types of federal and state taxes may affect this transaction?

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.

Toro Co. has equipment with a carrying amount of $700,000. The value-in-use of the equipment is $705,000, and its fair value less costs of disposal is $590,000. The equipment is expected to be used in operations in the future. What amount (if any) should Toro report as an impairment to its equipment?

Will the adoption of labour-intensive techniques necessarily lead to a more equal distribution of income?

Martin Buber Co. purchased land as a factory site for $400,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick for $6,300. Legal fees of $1,850 were paid for title investigation and drawing the purchase contract. Martin Buber paid $2,200 to an engineering firm for a land survey, and $68,000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability insurance premium paid during construction was $900. The contractor’s charge for construction was $2,740,000. The company paid the contractor in two installments: $1,200,000 at the end of 3 months and $1,540,000 upon completion. Interest costs of $170,000 were incurred to finance the construction. Instructions Determine the cost of the land and the cost of the building as they should be recorded on the books of Martin Buber Co. Assume that the land survey was for the building.

Compare the federal income tax to sales taxes using the “certainty” criterion.

Using the facts in problem 46, what interest rate does the State of New York need to offer to make Fergie indifferent between investing in the two bonds?