Question & Answer

Why do firms engage in IPOs? What is the amount of the fees that the lead underwriter and its syndicate charge a firm that is going public? Why are there many IPOs in some periods and few IPOs in other periods? (LO3)

What is meant by “accounting symmetry” between the entries recorded by the debtor and creditor in a troubleddebt restructuring involving a modification of terms? In what ways is the accounting for troubled-debt restructurings non-symmetrical?

(Looking at the Maths) What is the present value (utility) of a good which yields £50 of utility at the end of year 1, £60 at the end of year 2, £100 at the end of year 3 and £50 at the end of year 4, assuming a discount factor of 0.9? Would it be worth the consumer paying £200 for it today?

‘It is easier to control the monetary base than broader money, but it is less relevant to do so.’ Do you agree with this statement?

Mike wanted to work for a CPA firm, but he also wanted to work on his parents’ farm in Montana.  Because the CPA firm wanted Mike to be happy, it offered to let him work for the firm as an independent contractor during the fall and winter and return to Montana to work for his parents during the spring and summer.  He was very excited to hear that the firm was also going to give him a 5 percent higher “salary” for the six months he would be working for the firm over what he would have made over the same six-month period if he worked full time as an employee (i.e., an increase from $30,000 to $31,500).  Should Mike be excited about his 5 percent raise?  Why or why not?  What counteroffer could Mike reasonably suggest?

Draw another two indifference curves on Figure 4.5, one outward from and one inward from the original curve. Read off various combinations of pears and oranges along these two new curves and enter them on a table like Table 4.2.

Felicia Rashad Corporation has pretax financial income (or loss) equal to taxable income (or loss) from 2006 through 2014 as follows. Income (Loss) Tax Rate 2006 $ 29,000 30% 2007 40,000 30% 2008 17,000 35% 2009 48,000 50% 2010 (150,000) 40% 2011 90,000 40% 2012 30,000 40% 2013 105,000 40% 2014 (60,000) 45% Pretax financial income (loss) and taxable income (loss) were the same for all years since Rashad has been in business. Assume the carryback provision is employed for net operating losses. In recording the benefits of a loss carryforward, assume that it is more likely than not that the related benefits will be realized. Instructions (a) What entry(ies) for income taxes should be recorded for 2010? (b) Indicate what the income tax expense portion of the income statement for 2010 should look like. Assume all income (loss) relates to continuing operations. (c) What entry for income taxes should be recorded in 2011? (d) How should the income tax expense section of the income statement for 2011 appear? (e) What entry for income taxes should be recorded in 2014? (f) How should the income tax expense section of the income statement for 2014 appear?

Value-added and non-value-added activities Some activities add value to an organisation, while others do not.   Required Determine whether each of the following activities is likely to be value-added or non-value-added and explain your choice. (a)          Inspection activities (b)          Moving materials to work stations (c)           Manufacturing extra inventory to keep employees busy (d)          Packing to fill a customer order (e)           Product design initiatives

What are the differences, if any, between the legal and tax classifications of business entities?

What primary balance-to-GDP ratio would a country need to run to sustain a debt-to-GDP ratio of 60 per cent if the real interest rate is 2 per cent and economic growth is 4 per cent?

Wallace Computer Company is a small, closely held corporation. Eighty percent of the stock is held by Derek Wallace, president. Of the remainder, 10% is held by members of his family and 10% by Kathy Baker, a former officer who is now retired. The balance sheet of the company at June 30, 2014, was substantially as shown below.CONCEPTS FOR ANALYSIS Assets Liabilities and Stockholders’ Equity Cash $ 22,000 Current liabilities $ 50,000 Other 450,000 Common stock 250,000 $472,000 Retained earnings 172,000 $472,000 Additional authorized common stock of $300,000 par value had never been issued. To strengthen the cash position of the company, Wallace issued common stock with a par value of $100,000 to himself at par for cash. At the next stockholders’ meeting, Baker objected and claimed that her interests had been injured. Instructions (a) Which stockholder’s right was ignored in the issue of shares to Derek Wallace? (b) How may the damage to Baker’s interests be repaired most simply? (c) If Derek Wallace offered Baker a personal cash settlement and they agreed to employ you as an impartial arbitrator to determine the amount, what settlement would you propose? Present your calculations with sufficient explanation to satisfy both parties.

Assume that the Fed’s primary goal is to reduce inflation. How can it implement monetary policy to achieve this goal? What is a possible adverse effect of such action by the Fed (even if it achieves this goal)? (LO3)

Can a bank simultaneously maximize return and minimize credit risk? If not, what can it do instead? (LO4)

Two economists disagree over the best way of tackling the problem of unemployment. For what types of reasons might they disagree? Are these reasons positive or normative?

What is meant by the term graduated measuring device?

Electrodes in arc welding are divided into two categories. Name and define the two types.

State how each of the following items is reflected in the financial statements. (a) Change from FIFO to LIFO method for inventory valuation purposes. (b) Charge for failure to record depreciation in a previous period. (c) Litigation won in current year, related to prior period. (d) Change in the realizability of certain receivables. (e) Write-off of receivables. (f) Change from the percentage-of-completion to the completed-contract method for reporting net income.

Explain the distinction between a direct-financing lease and a sales-type lease for a lessor.

The Samsons are trying to determine whether they can claim their 22-year-old adopted son, Jason, as a dependent.Jason is currently a full-time student at an out-of-state university.Jason lived in his parents’ home for three months of the year, and he was away at school for the rest of the year.He received $9,500 in scholarships this year for his outstanding academic performance and earned $4,800of income working a part-time job during the year. The Samsons paid a total of $5,000to support Jason while he was away at college.Jason used the scholarship, the earnings from the part-time job, and the money from the Samsons as his only sources of support. a. Can the Samsons claim Jason as their dependent?

How do people’s expectations influence the extent of crowding out?

Bridgewater Corp. offered holders of its 1,000 convertible bonds a premium of $160 per bond to induce conversion into shares of its common stock. Upon conversion of all the bonds, Bridgewater Corp. recorded the $160,000 premium as a reduction of paid-in capital. Comment on Bridgewater’s treatment of the $160,000 “sweetener.”

What is the difference between diffusion and ion implantation?

On July 1, 2014, Roberts Corporation issued $3,000,000 of 9% bonds payable in 20 years. The bonds include detachable warrants giving the bondholder the right to purchase for $30 one share of $1 par value common stock at any time during the next 10 years. The bonds were sold for $3,000,000. The value of the warrants at the time of issuance was $100,000. Prepare the journal entry to record this transaction.

Outline the accounting procedures involved in applying the operating method by a lessee.

Illustrate on two separate indifference diagrams the income and substitution effects of the following: (a)    A decrease in the price of good X (and no change in the price of good Y). (b)    An increase in the price of good Y (and no change in the price of good X)