Question & Answer

Estate agents consistently ‘talk up’ the housing market, often predicting price rises when other commentators are more cautious. Explain why they might have a vested interest in doing so.

Dana Ashbrook Inc. has negotiated the purchase of a new piece of automatic equipment at a price of $8,000 plus trade-in, f.o.b. factory. Dana Ashbrook Inc. paid $8,000 cash and traded in used equipment. The used equipment had originally cost $62,000; it had a book value of $42,000 and a secondhand fair value of $47,800, as indicated by recent transactions involving similar equipment. Freight and installation charges for the new equipment required a cash payment of $1,100. Instructions (a) Prepare the general journal entry to record this transaction, assuming that the exchange has commercial substance. (b) Assuming the same facts as in (a) except that fair value information for the assets exchanged is not determinable, prepare the general journal entry to record this transaction.

Allison, Keesha, and Steven each own an equal interest in KAS Partnership, a calendar-year-end, cash-method entity. On January 1 of the current year, Steven’s basis in his partnership interest is $27,000. During January and February, the partnership generates $30,000 of ordinary income and $4,500 of tax-exempt income. On March 1, Steven sells his partnership interest to Juan for a cash payment of $45,000. The partnership has the following assets and no liabilities at the sale date: Tax Basis FMV Cash $ 30,000 $ 30,000 Land held for investment 30,000 60,000   Totals $ 60,000 $ 90,000 a. Assuming KAS’s operating agreement provides for an interim closing of the books when partners’ interests change during the year, what is Steven’s basis in his partnership interest on March 1 just prior to the sale? b. What are the amount and character of Steven’s recognized gain or loss on the sale? c. What is Juan’s initial basis in the partnership interest? d. What is the partnership’s basis in the assets following the sale?

What are the two basic methods of accounting for longterm construction contracts? Indicate the circumstances that determine when one or the other of these methods should be used.

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.

What are the two ways that other comprehensive income may be displayed (reported)?

Charity Property Cost FMV Athens Academy School Cash $ 5,000 $5,000 United Way Cash 4,000 4,000 American Heart Association Antique painting 15,000 75,000 First Methodist Church Coca Cola stock 12,000 20,000 Determine the maximum amount of charitable deduction for each of these contributions ignoring the AGI ceiling on charitable contributions and assuming that the American Heart Association plans to sell the antique painting to fund its operations. Ray Ray has owned the painting and Coca-Cola stock since 1990.

If supply is totally inelastic, what determines the rental value of capital equipment in the short run?

Consider the most appropriate policy for tackling each of the different types of unemployment.

{Planning} Jackie has a corporate client that has recently received a 30-day notice from the IRS with a $100,000 tax assessment.  Her client is considering requesting an appeals conference to contest the assessment.  What factors should Jackie advise her client to consider before requesting an appeals conference?

When is revenue recognized under the cost-recovery method?

Turner, Inc. began work on a $7,000,000 contract in 2014 to construct an office building. During 2014, Turner, Inc. incurred costs of $1,700,000, billed its customers for $1,200,000, and collected $960,000. At December 31, 2014, the estimated future costs to complete the project total $3,300,000. Prepare Turner’s 2014 journal entries using the percentage-of-completion method.

A composite sample of carbon reinforced epoxy has dimensions of 12 in by 12 in by 0.25 in and mass of 1.8 lb. The carbon fibers have a modulus of elasticity of 50(106 ) lb/in2 and a density of 0.069 lb/in3 . The epoxy matrix has modulus of elasticity of 0.61(106 ) lb/in2 and a density of 0.042 lb/in3 . What is the volume fraction of (a) the carbon fibers and (b) the epoxy matrix in the sample? Assume there are no voids in the sample.

Hamilton Construction Company uses the percentage-of-completion method of accounting. In 2014, Hamilton began work under contract #E2-D2, which provided for a contract price of $2,200,000. Other details are as follows. 2014 2015 Costs incurred during the year $640,000 $1,425,000 Estimated costs to complete, as of December 31 960,000 –0– Billings during the year 420,000 1,680,000 Collections during the year 350,000 1,500,000 Instructions (a) What portion of the total contract price would be recognized as revenue in 2014? In 2015? (b) Assuming the same facts as those shown above except that Hamilton uses the cost-recovery method of accounting, what portion of the total contract price would be recognized as revenue in 2015?

The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marks-and- Spencer-Annual-report-and-financial-statements-2012.pdf. Instructions Refer to M&S’s financial statements and the accompanying notes to answer the following questions. (a) What were M&S’s sales for 2012? (b) What was the percentage of increase or decrease in M&S’s sales from 2011 to 2012? From 2010 to 2011? From 2010 to 2012? (c) In its notes to the financial statements, what criteria does M&S use to recognize revenue? (d) How does M&S account for discounts and loyalty schemes? Does the accounting conform to accrual-accounting concepts? Explain.

Instructions Go to the book’s companion website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc. (a) What were Coca-Cola’s and PepsiCo’s net revenues (sales) for the year 2011? Which company increased its revenues more (dollars and percentage) from 2010 to 2011? (b) Are the revenue recognition policies of Coca-Cola and PepsiCo similar? Explain. (c) In which foreign countries (geographic areas) did Coca-Cola and PepsiCo experience significant revenues in 2011? Compare the amounts of foreign revenues to U.S. revenues for both Coca-Cola and PepsiCo.

Determine the tonnage requirement for the blanking operation in Problem 20.4, given that the stainless steel has a yield strength = 500 MPa, a shear strength = 600 MPa, and a tensile strength = 700 MPa

What quantitative materiality test is applied to determine whether a segment is significant enough to warrant separate disclosure?

Discuss the entrance of savings institutions into the market for consumer and commercial lending. What are the potential risks and rewards of this strategy? Discuss the conflict between diversification and specialization of SIs. (LO2)

Determine the bending force required in Problem 20.9 if the bend is to be performed in a V-die with a die opening dimension of 40 mm. The material has a tensile strength of 600 MPa and a shear strength of 430 MPa

How do speculators use call options? Describe the conditions under which their strategy would backfire. What is the maximum loss that could occur for a purchaser of a call option? (LO3)

What is the meaning of a negative profit?

At January 1, 2014, Eikenberry Inc. had accounts receivable of $72,000. At December 31, 2014, accounts receivable is $54,000. Sales revenue for 2014 total $420,000. Compute Eikenberry’s 2014 cash receipts from customers.

A horizontal true centrifugal casting process is used to make brass bushings with the following dimensions: length = 10 cm, outside diameter = 15 cm, and inside diameter = 12 cm. (a) Determine the required rotational speed in order to obtain a G-factor of 70. (b) When operating at this speed, what is the centrifugal force per square meter (Pa) imposed by the molten metal on the inside wall of the mold?

Lockard Company purchased machinery on January 1, 2014, for $80,000. The machinery is estimated to have a salvage value of $8,000 after a useful life of 8 years. (a) Compute 2014 depreciation expense using the straight-line method. (b) Compute 2014 depreciation expense using the straight-line method assuming the machinery was purchased on September 1, 2014.