Question & Answer

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 are the major limitations of the balance sheet as a source of information?

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.

Name some of the nonoptical noncontact sensor technologies available for inspection.

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

What does it mean to characterize a gain or loss?  Why is characterizing a gain or loss important?

Because of calamitous earthquake losses, Bernstein Company, one of your client’s oldest and largest customers, suddenly and unexpectedly became bankrupt. Approximately 30% of your client’s total sales have been made to Bernstein Company during each of the past several years. The amount due from Bernstein Company—none of which is collectible—equals 22% of total accounts receivable, an amount that is considerably in excess of what was determined to be an adequate provision for doubtful accounts at the close of the preceding year. How would your client record the write-off of the Bernstein Company receivable if it is using the allowance method of accounting for bad debts? Justify your suggested treatment.

Marc and Mikkel are married and file a joint tax return. Marc and Mikkel earned salaries this year of $64,000 and $12,000, respectively. In addition to their salaries, they received interest of $350 from municipal bonds and $500 from corporate bonds. Marc contributed $2,500 to a traditional individual retirement account, and he also paid alimony to a prior spouse in the amount of $1,500 (under a divorce decree effective June 1, 2017). Marc and Mikkel have a 10-year-old adopted son, Mason, who lived with them throughout the entire year. Thus, Marc and Mikkel are allowed to claim a $2,000 child tax credit for Matthew. Marc and Mikkel paid $6,000 of expenditures that qualify as itemized deductions, and they had a total of $2,500 in federal income taxes withheld from their paychecks during the year.

What is the expected value of the above lottery ticket gamble if the chances of purchasing a winning ticket with a prize of £50 are 30 per cent? How much of the expected value of the gamble is a risk-averse person willing to sacrifice if they decide against purchasing the ticket? If they were indifferent between purchasing and not purchasing the ticket, what is their certainty equivalent and risk premium of the gamble?

Explain why, if the firm can practise first-degree price discrimination by selling every unit at the maximum price each consumer is prepared to pay, its revenue from selling 200 units will be the sum of both the shaded areas in Figure 8.13.

One financial accounting issue encountered when a company constructs its own plant is whether the interest cost on funds borrowed to finance construction should be capitalized and then amortized over the life of the assets constructed. What is the justification for capitalizing such interest?

Name the four subsystems in a RAM EDM process.

Why might a company become involved in an interest rate swap contract to receive fixed interest payments and pay variable?

On July 31, 2014, Amsterdam Company engaged Minsk Tooling Company to construct a special-purpose piece of factory machinery. Construction was begun immediately and was completed on November 1, 2014. To help finance construction, on July 31 Amsterdam issued a $300,000, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $200,000 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Amsterdam made a final $100,000 payment to Minsk. Other than the note to Netherlands, Amsterdam’s only outstanding liability at December 31, 2014, is a $30,000, 8%, 6-year note payable, dated January 1, 2011, on which interest is payable each December 31. Instructions (a) Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2014. (Round all computations to the nearest dollar.) (b) Prepare the journal entries needed on the books of Amsterdam Company at each of the following dates. (1) July 31, 2014. (2) November 1, 2014. (3) December 31, 2014.

The following information is available for the pension plan of Radcliffe Company for the year 2014. Actual and expected return on plan assets $ 15,000 Benefi ts paid to retirees 40,000 Contributions (funding) 90,000 Interest/discount rate 10% Prior service cost amortization 8,000 Projected benefi t obligation, January 1, 2014 500,000 Service cost 60,000 Instructions (a) Compute pension expense for the year 2014. (b) Prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 2014.

1. Who is likely to work harder as a result of a cut in income tax rates, a rich person or a poor person? Why? Would your answer be different if personal allowances were zero? 2. How will tax cuts affect the willingness of married women to return to employment after having brought up a family?

Complete Table 13.3 up to 9 cars per minute, assuming that the journey time increases to 24 minutes for the eighth car and 35 minutes for the ninth car.

Identify the factors that are relevant in determining the annual depreciation charge, and explain whether these factors are determined objectively or whether they are based on judgment.

Why do financial market participants closely monitor money supply movements? (LO5)

Describe the effect of strain rate in metal forming.

Suppose you asked your favorite AI query tool the following question: “Are property taxes that refunded included in gross income for federal income tax purposes?”  The AI tool provided the following response:

Last Chance Mine (LCM) purchased a coal deposit for $750,000. It estimated it would extract 12,000 tons of coal from the deposit. LCM mined the coal and sold it, reporting gross receipts of $1 million, $3 million, and $2 million for years 1 through 3, respectively. During years 1 – 3, LCM reported net income (loss) from the coal deposit activity in the amount of ($20,000), $500,000, and $450,000, respectively. In years 1 – 3, LCM extracted 13,000 tons of coal as follows:   DepletionTons extracted per year (1)  Tons of Coal (2)  Basis (2)/(1) Rate Year 1 Year 2 Year 3 12,000 $750,000 $62.50 2,000 7,200 3,800 a. What is LCM’s cost depletion for years 1, 2, and 3? b. What is LCM’s percentage depletion for each year (the applicable percentage for coal is 10 percent)?  c. Using the cost and percentage depletion computations from parts (a) and (b), what is LCM’s actual depletion expense for each year?

1.      : What should Clarke do now to try to recover from the negative impact of his e-mails? Suggest specific steps.

1.       : Aaron Alexis, the former Navy reservist who went on a shooting rampage and killed 12 people at the Washington Navy Yard in Washington D.C., had a history of mental instability, but he was carrying a valid security clearance. How would you suggest managers make decisions for issuing or revoking security clearances to prevent this kind of catastrophe?

XYZ declared a $1 per share dividend on August 15. The date of record for the dividend was September 1 (the stock began selling ex-dividend on September 2). The dividend was paid on September 10. Ellis is a cash-method taxpayer. Determine the economic income and the amount he must include in gross income under the following independent circumstances.