Question & Answer

On October 1, 2014, Arden Farm Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc. In lieu of a cash payment Valco Brothers Farm gave Arden a 2-year, $120,000, 8% note (a realistic rate of interest for a note of this type). The note required interest to be paid annually on October 1. Arden’s financial statements are prepared on a calendar-year basis. Instructions Assuming Valco Brothers Farm fulfills all the terms of the note, prepare the necessary journal entries for Arden Farm Equipment Company for the entire term of the note.

Minuteman wants to enter into a like-kind exchange by exchanging its old New England manufacturing facility for a ranch in Wyoming. Minuteman is using a third-party intermediary to facilitate the exchange. The purchaser of the manufacturing facility wants to complete the transaction immediately, but, for various reasons, the ranch transaction will not be completed for three to four months. Will this delay cause a problem for Minuteman’s desire to accomplish this through a like-kind exchange?  Explain.

What is the benefit of a single set of high-quality accounting standards?

If banks operated a rigid 5 per cent cash ratio and the government reduced the supply of cash by £1 million, how much must credit contract? What is the bank deposits multiplier?

What are the principal considerations of a board of directors in making decisions involving dividend declarations? Discuss briefly.

A vertical true centrifugal casting process is used to produce bushings that are 200 mm long and 200 mm in outside diameter. If the rotational speed during solidification is 500 rev/min, determine the inside diameter at the top of the bushing if the inside diameter at the bottom is 150 mm.

Indicate three reasons why a company might sell its receivables to another company.

Grady is a 45-year-old employee with AMUCK Garbage Corporation. AMUCK pays group-term life insurance premiums for employees, and Grady chose the maximum face amount of $120,000. What amount, if any, of the premium AMUCK paid on his behalf must Grady include in his gross income for the year? Provide a tax authority to support your answer.

What are the three layers of a part’s surface after undergoing EDM.

Assume that Fielder Enterprises uses the following headings on its balance sheet. (a) Current assets. (f) Current liabilities. (b) Investments. (g) Long-term liabilities. (c) Property, plant, and equipment. (h) Capital stock. (d) Intangible assets. (i) Paid-in capital in excess of par. (e) Other assets. (j) Retained earnings. Instructions Indicate by letter how each of the following usually should be classified. If an item should appear in a note to the financial statements, use the letter “N” to indicate this fact. If an item need not be reported at all on the balance sheet, use the letter “X.” 1. Prepaid insurance. 2. Stock owned in affiliated companies. 3. Unearned service revenue. 4. Advances to suppliers. 5. Unearned rent revenue. 6. Preferred stock. 7. Additional paid-in capital on preferred stock. 8. Copyrights. 9. Petty cash fund. 10. Sales taxes payable. 11. Accrued interest on notes receivable. 12. Twenty-year issue of bonds payable that will mature within the next year. (No sinking fund exists, and refunding is not planned.) 13. Machinery retired from use and held for sale. 14. Fully depreciated machine still in use. 15. Accrued interest on bonds payable. 16. Salaries that company budget shows will be paid to employees within the next year. 17. Discount on bonds payable. (Assume related to bonds payable in item 12.) 18. Accumulated depreciation—buildings. 19. Noncontrolling interest.

Answer the following questions relatedto Dubois Inc. (a) Dubois Inc. has $600,000 to invest. The company is trying to decide between two alternative uses of the funds. One alternative provides $80,000 at the end of each year for 12 years, and the other is to receive a single lump-sum payment of $1,900,000 at the end of the 12 years. Which alternative should Dubois select? Assume the interest rate is constant over the entire investment. (b) Dubois Inc. has completed the purchase of new Dell computers. The fair value of the equipment is $824,150. The purchase agreement specifies an immediate down payment of $200,000 and semiannual payments of $76,952 beginning at the end of 6 months for 5 years. What is the interest rate, to the nearest percent, used in discounting this purchase transaction? (c) Dubois Inc. loans money to John Kruk Corporation in the amount of $800,000. Dubois accepts an 8% note due in 7 years with interest payable semiannually. After 2 years (and receipt of interest for 2 years), Dubois needs money and therefore sells the note to Chicago National Bank, which demands interest on the note of 10% compounded semiannually. What is the amount Dubois will receive on the sale of the note? (d) Dubois Inc. wishes to accumulate $1,300,000 by December 31, 2024, to retire bonds outstanding. The company deposits $200,000 on December 31, 2014, which will earn interest at 10% compounded quarterly, to help in the retirement of this debt. In addition, the company wants to know how much should be deposited at the end of each quarter for 10 years to ensure that $1,300,000 is available at the end of 2024. (The quarterly deposits will also earn at a rate of 10%, compounded quarterly.) (Round to even dollars.)

On February 1, 2015, one of the huge storage tanks of Viking Manufacturing Company exploded. Windows in houses and other buildings within a one-mile radius of the explosion were severely damaged, and a number of people were injured. As of February 15, 2015 (when the December 31, 2014, financial statements were completed and sent to the publisher for printing and public distribution), no suits had been filed or claims asserted against the company as a consequence of the explosion. The company fully anticipates that suits will be filed and claims asserted for injuries and damages. Because the casualty was uninsured and the company considered at fault, Viking Manufacturing will have to cover the damages from its own resources. Instructions Discuss fully the accounting treatment and disclosures that should be accorded the casualty and related contingent losses in the financial statements dated December 31, 2014.

Andrew Bogut just received a signing bonus of $1,000,000. His plan is to invest this payment in a fund that will earn 8%, compounded annually. Instructions (a) If Bogut plans to establish the AB Foundation once the fund grows to $1,999,000, how many years until he can establish the foundation? (b) Instead of investing the entire $1,000,000, Bogut invests $300,000 today and plans to make 9 equal annual investments into the fund beginning one year from today. What amount should the payments be if Bogut plans to establish the $1,999,000 foundation at the end of 9 years?

What purpose does the variety in bond features (types and characteristics) serve?

Why are the nontraditional material removal processes important?

What are the three main goals in total quality management (TQM)?

When is the cost of education deductible as an employee business expense?

Use the information in BE7-9 for Wood. Assume that the receivables are sold with recourse. Prepare the journal entry for Wood to record the sale, assuming that the recourse liability has a fair value of $7,500.

: Discuss the use of financial statements and financial analysis as management controls.

Wildcat Corporation is owned equally by Evan and his sister Sara, each of whom hold 1,000 shares in Wildcat. Sara wants to reduce her ownership in the company, and it was decided that Wildcat will redeem 500 of her shares for $25,000 per share on December 31 of this year. Sara’s tax basis in each share is $5,000. Wildcat has current E&P of $10,000,000 and at the beginning of the year accumulated E&P is $50,000,000.

Explain the meaning of a temporary difference as it relates to deferred tax computations, and give three examples.

Using the Internal Revenue Code, describe two deductions for AGI that are not discussed in this chapter.

1. What will happen to an isocost if the prices of both factors rise by the same percentage? 2. What will happen to the isocost of Figure 6.8 if the wage rate rises to £15 000?

When is an S corporation required to pay a built-in gains tax?

Use the information for Rick Kleckner Corporation from BE21-3. Assume that at December 31, 2014, Kleckner made an adjusting entry to accrue interest expense of $29,530 on the lease. Prepare Kleckner’s January 1, 2015, journal entry to record the second lease payment of $53,920.