Question & Answer

‘As volume increases, total cost increases and per-unit cost decreases.’ What type of linear cost function does this describe? Draw a simple graph of this type of cost function.

The differences between the book basis and tax basis of the assets and liabilities of Castle Corporation at the end of 2013 are presented below. Book Basis Tax Basis Accounts receivable $50,000 $–0– Litigation liability 30,000 –0– It is estimated that the litigation liability will be settled in 2014. The difference in accounts receivable will result in taxable amounts of $30,000 in 2014 and $20,000 in 2015. The company has taxable income of $350,000 in 2013 and is expected to have taxable income in each of the following 2 years. Its enacted tax rate is 34% for all years. This is the company’s first year of operations. The operating cycle of the business is 2 years. Instructions (a) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2013. (b) Indicate how deferred income taxes will be reported on the balance sheet at the end of 2013.

If a good were free, why would total consumer surplus equal total utility? What would be the level of marginal utility?

In an orthogonal cutting operation, the 0.250 in wide tool has a rake angle of 5°. The lathe is set so the chip thickness before the cut is 0.010 in. After the cut, the deformed chip thickness is measured to be 0.027 in. Calculate (a) the shear plane angle and (b) the shear strain for the operation.

A vertical true centrifugal casting process is used to make tube sections with length = 10.0 in and outside diameter = 6.0 in. The inside diameter of the tube = 5.5 in at the top and 5.0 in at the bottom. At what speed must the tube be rotated during the operation in order to achieve these specifications?

List two examples of non-linear cost functions and describe a method of developing a cost function for each one.

Transfer pricing Georgina Chan is the chief financial officer of Colorado Pty Ltd, which has three interdependent divisions where, on average, about 30 per cent of the output of one division is transferred to one of the other divisions. She is currently dealing with a dispute within the accounting office about the best way to treat transfer pricing within the company. The chief executive officer has advised that any change to the policy should not compromise what is best for the company overall. Senior accountant Andy Chan says ‘as we are a highly decentralised firm, the only way to go is to use market price as the key method and allow sourcing autonomy’. Meanwhile, graduate accountant Roger Singh says ‘I disagree. If we go with full cost plus a 15 per cent mark-up and no sourcing autonomy, that would be best’.   Required State one advantage and one disadvantage of each proposed policy and advise which policy you think would serve the company best. Briefly explain.

Tamika Meer purchased a new car for use in her business during 2024 for $75,000. The auto was the only business asset she purchased during the year, and her business was very profitable. Calculate Tamika’s maximum depreciation deductions for the automobile in 2024 and 2025 under the following scenarios: a. Tamika does not want to take §179 expense and she elects out of bonus depreciation. b. Tamika wants to maximize her 2024 depreciation using bonus depreciation.

]  What are the three potential tax treatments of a cash distribution to a shareholder?  Are these potential tax treatments elective by the shareholder?

What is a part family?

Describe the two criteria for determining the valuation of financial assets.

Of what significance are primary deficits or surpluses for the dynamics of a government’s debt-to-GDP ratio?

1. Trace through the effects of a squeeze on the monetary base from an initial reduction in cash, to banks’ liquidity being restored by the rediscounting of bills. Will this restoration of liquidity by the Bank of England totally nullify the initial effect of reducing the supply of cash? (Clue: what is likely to happen to the rate of interest?) 2. Given the difficulties of monetary base control, would you expect cash in circulation and broader measures of the money supply, such as M4, to rise and fall by the same percentage as each other?

During periods when investors suddenly become fearful that stocks are overvalued, they dump their stocks, and the stock market experiences a major decline. During these periods, interest rates also tend to decline. Use the loanable funds framework discussed in this chapter to explain how a massive selloff of stocks leads to lower interest rates. (LO1)

Explain how convertible securities are determined to be potentially dilutive common shares and how those convertible securities that are not considered to be potentially dilutive common shares enter into the determination of earnings per share data.

What is the basic difference in the solidification (or melting) process between crystalline and noncrystalline structures?

Consider the following letter and answer Shady’s question.

At December 31, 2014, Appaloosa Corporation had a deferred tax liability of $25,000. At December 31, 2015, the deferred tax liability is $42,000. The corporation’s 2015 current tax expense is $48,000. What amount should Appaloosa report as total 2015 income tax expense?

On December 31, 2014, Hattie McDaniel Company had $1,200,000 of short-term debt in the form of notes payable due February 2, 2015. On January 21, 2015, the company issued 25,000 shares of its common stock for $38 per share, receiving $950,000 proceeds after brokerage fees and other costs of issuance. On February 2, 2015, the proceeds from the stock sale, supplemented by an additional $250,000 cash, are used to liquidate the $1,200,000 debt. The December 31, 2014, balance sheet is issued on February 23, 2015. Instructions Show how the $1,200,000 of short-term debt should be presented on the December 31, 2014, balance sheet, including note disclosure.

What stock ownership tests must be met before a shareholder receives exchange treatment under the substantially disproportionate change-in-stock-ownership test in a stock redemption?  Why is a change-in-stock-ownership test used to determine the tax status of a stock redemption?

What is a chill in casting?

Winston Industries and Ewing Inc. enter into an agreement that requires Ewing Inc. to build three diesel-electric engines to Winston’s specifications. Upon completion of the engines, Winston has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is noncancelable, becomes effective on January 1, 2014, and requires annual rental payments of $413,971 each January 1, starting January 1, 2014. Winston’s incremental borrowing rate is 10%. The implicit interest rate used by Ewing Inc. and known to Winston is 8%. The total cost of building the three engines is $2,600,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Winston depreciates similar equipment on a straight-line basis. At the end of the lease, Winston assumes title to the engines. Collectibility of the lease payments is reasonably certain; no uncertainties exist relative to unreimbursable lessor costs. Instructions (a) Discuss the nature of this lease transaction from the viewpoints of both lessee and lessor. (b) Prepare the journal entry or entries to record the transaction on January 1, 2014, on the books of Winston Industries. (c) Prepare the journal entry or entries to record the transaction on January 1, 2014, on the books of Ewing Inc. (d) Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2014. (e) Prepare the journal entries for both the lessee and lessor to record interest expense (revenue) at December 31, 2014. (Prepare a lease amortization schedule for 2 years.) (f) Show the items and amounts that would be reported on the balance sheet (not notes) at December 31, 2014, for both the lessee and the lessor.

What is the fair value option?

Explain the use of the price-earnings ratio for valuing a stock. Why might investors derive different valuations for a stock when using the PE method? Why might investors derive an inaccurate valuation of a firm when using the PE method? (LO1)

Discuss the relationship between the yield and the liquidity of securities. (LO1)