Question & Answer

Mike Macinski Leasing Company leases a new machine that has a cost and fair value of $95,000 to Sharrer Corporation on a 3-year noncancelable contract. Sharrer Corporation agrees to assume all risks of normal ownership including such costs as insurance, taxes, and maintenance. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2014. Mike Macinski Leasing Company expects to earn a 9% return on its investment. The annual rentals are payable on each December 31. Instructions (a) Discuss the nature of the lease arrangement and the accounting method that each party to the lease should apply. (b) Prepare an amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved.

A 16 gage nickel wire (0.0508-in diameter) connects a solenoid to a control circuit that is 32.8 ft away. (a) What is the resistance of the wire? Use Table 4.3 as a reference. (b) If a current was passed through the wire, it would heat up. How does this affect the resistance?

Name the two basic categories of casting processes.

What elements are traditionally alloyed with copper to form (a) bronze and (b) brass?

: Explain how the balanced scorecard addresses the four steps in the control process.

What is one of the important applications of titanium nitride, as mentioned in the text?

Two new software projects are proposed to a young, start-up company. The Alpha project will cost $150,000 to develop and is expected to have annual net cash flow of $40,000. The Beta project will cost $200,000 to develop and is expected to have annual net cash flow of $50,000. The company is very concerned about their cash flow. Using the payback period, which project is better from a cash flow standpoint? Why?

Explain why investor sentiment can affect stock prices. (LO3)

Jefferson Millinery Inc. (JMI) decided to liquidate its wholly owned subsidiary, 8 Miles High Inc. (8MH). 8MH had the following tax accounting balance sheet.       FMV         Tax basisAppreciation Cash$  200,000$     200,000 Building      50,000         10,000        40,000 Land    150,000         90,000        60,000 Total$  400,000$     300,000$    100,000

Name three common types of income shifting.

Where, if at all, should the following items be classified on a balance sheet? (a) Goods out on approval to customers. (b) Goods in transit that were recently purchased f.o.b. destination. (c) Land held by a realty firm for sale. (d) Raw materials. (e) Goods received on consignment. (f) Manufacturing supplies.

If there were a gradual increase in the saving rate over time, would this lead to sustained economic growth?

Compare a centralized database system to a decentralized, distributed blockchain system. (LO2)

Klamath Company, a manufacturer of ballet shoes, is experiencing a period of sustained growth. In an effort to expand its production capacity to meet the increased demand for its product, the company recently made several acquisitions of plant and equipment. Rob Joffrey, newly hired in the position of fixed-asset accountant, requested that Danny Nolte, Klamath’s controller, review the following transactions. Transaction 1: On June 1, 2014, Klamath Company purchased equipment from Wyandot Corporation. Klamath issued a $28,000, 4-year, zero-interest-bearing note to Wyandot for the new equipment. Klamath will pay off the note in four equal installments due at the end of each of the next 4 years. At the date of the transaction, the prevailing market rate of interest for obligations of this nature was 10%. Freight costs of $425 and installation costs of $500 were incurred in completing this transaction. The appropriate factors forthe time value of money at a 10% rate of interest are given below. Future value of $1 for 4 periods 1.46 Future value of an ordinary annuity for 4 periods 4.64 Present value of $1 for 4 periods 0.68 Present value of an ordinary annuity for 4 periods 3.17 Transaction 2: On December 1, 2014, Klamath Company purchased several assets of Yakima Shoes Inc., a small shoe manufacturer whose owner was retiring. The purchase amounted to $220,000 and included the assets listed below. Klamath Company engaged the services of Tennyson Appraisal Inc., an independent appraiser, to determine the fair values of the assets which are also presented below. During its fiscal year ended May 31, 2015, Klamath incurred $8,000 for interest expense in connection with the financing of these assets. Transaction 3: On March 1, 2015, Klamath Company exchanged a number of used trucks plus cash for vacant land adjacent to its plant site. (The exchange has commercial substance.) Klamath intends to usthe land for a parking lot. The trucks had a combined book value of $35,000, as Klamath had recorded $20,000 Marshall Const. Brigham Mfg. Co. Fair value of old crane $ 82,000 Fair value of new crane $200,000 Cash paid 118,000 Cash received 118,000 Yakima Book Value Fair Value Inventory $ 60,000 $ 50,000 Land 40,000 80,000 Buildings 70,000 120,000$170,000 $250,000 of accumulated depreciation against these assets. Klamath’s purchasing agent, who has had previous dealings in the secondhand market, indicated that the trucks had a fair value of $46,000 at the time of the transaction. In addition to the trucks, Klamath Company paid $19,000 cash for the land. Instructions (a) Plant assets such as land, buildings, and equipment receive special accounting treatment. Describe the major characteristics of these assets that differentiate them from other types of assets. (b) For each of the three transactions described above, determine the value at which Klamath Company should record the acquired assets. Support your calculations with an explanation of the underlying rationale. (c) The books of Klamath Company show the following additional transactions for the fiscal year ended May 31, 2015. (1) Acquisition of a building for speculative purposes. (2) Purchase of a 2-year insurance policy covering plant equipment. (3) Purchase of the rights for the exclusive use of a process used in the manufacture of ballet shoes. For each of these transactions, indicate whether the asset should be classified as a plant asset. If it is a plant asset, explain why it is. If it is not a plant asset, explain why not, and identify the proper classification.

How is the market price of land related to its productivity?

On January 1, 2013, Phantom Company acquires $200,000 of Spiderman Products, Inc., 9% bonds at a price of $185,589. The interest is payable each December 31, and the bonds mature December 31, 2015. The investment will provide Phantom Company a 12% yield. The bonds are classified as held-to-maturity. Instructions (a) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the straightline method. (b) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the effective-interest method. (c) Prepare the journal entry for the interest receipt of December 31, 2014, and the discount amortization under the straight-line method. (d) Prepare the journal entry for the interest receipt of December 31, 2014, and the discount amortization under the effective-interest method.

Explain how the downgrading of bonds for a particular corporation affects the prices of those bonds, the return to investors who currently hold these bonds, and the potential return to other investors who may invest in the bonds in the near future. (LO2)

Yong recently paid his accountant $10,000 for elaborate tax planning strategies that exploit the timing strategy. Assuming this is an election year and there could be a power shift in the White House and Congress, what is a potential risk associated with Yong’s strategies?

To what extent do (a) income tax, (b) VAT and (c) a poll tax meet the various requirements for a good tax system?

Consider the data in Problem 21.10 except that rake angle is a variable, and its effect on the forces in parts (b), (c), and (d) is to be evaluated. (a) Using a spreadsheet calculator, compute the values of shear force, cutting force, thrust force, and friction force as a function of rake angle over a range of rake angles between the high value of 20° in Problem 21.10 and a low value of -10°. Use intervals of 5° between these limits. The chip thickness ratio decreases as rake angle is reduced and can be approximated by the following relationship: r = 0.38 + 0.006 , where r = chip thickness and = rake angle. (b) What observations can be made from the computed results?

Normal and abnormal spoilage Franklin Fabrication produces custom-made security doors and gates. Currently two jobs are in process, 359 and 360. During production of Job 359, the supervisor was on holidays and the employees made several errors in cutting the metal pieces for the two doors in the order. The spoiled metal pieces cost $20 each and had zero scrap value. In addition, an order of five gates that had been manufactured for Job 360 required a fine wire mesh that sometimes tore as it was being mounted. Because a similar wire could be used that was much easier to install, the customer had been warned that costs could run over the bid if any difficulty was encountered in installing the wire. One of the gates was spoiled during the process of installing the wire. The cost of the materials and direct labour for the gate was $150. The gate and metal were hauled to the dump and discarded.   Required (a)          Should the spoilage for Job 359 be categorised as normal or abnormal spoilage? Explain. (b)          Should the spoilage for Job 360 be categorised as normal or abnormal spoilage? Explain. (c)           Prepare spoilage journal entries for both jobs.

Define and sketch a groove weld.

The financial statements of P&G are presented in Appendix 5B. The company’s complete annual report, including the notes to the financial statements, can be accessed at the book’s companion website, www. wiley.com/college/kieso. Instructions Refer to P&G’s financial statements and the accompanying notes to answer the following questions. (a) What were P&G’s net sales for 2011? (b) What was the percentage of increase or decrease in P&G’s net sales from 2010 to 2011? From 2009 to 2010? From 2009 to 2011? (c) In its notes to the financial statements, what criteria does P&G use to recognize revenue? (d) How does P&G account for trade promotions? Does the accounting conform to accrual accounting concepts? Explain.

The certified public accountant is frequently called upon by management for advice regarding methods of computing depreciation. Of comparable importance, although it arises less frequently, is the question of whether the depreciation method should be based on consideration of the assets as units, as a group, or as having a composite life. Instructions (a) Briefly describe the depreciation methods based on treating assets as (1) units and (2) a group or as having a composite life. (b) Present the arguments for and against the use of each of the two methods. (c) Describe how retirements are recorded under each of the two methods.

What factors could cause a rise in the market rate of interest?