Question & Answer

Lanny and Shirley divorced in 2018 and do not live together. Shirley has custody of their child, Art, and Lanny pays Shirley $22,000 per year. All property was divided equally.

Assume that a monopolistically competitive industry is in long-run equilibrium. On a diagram like Figure 8.1(b), show the effect of a fall in demand on a firm’s price and profit in (a) the short run and (b) the long run.

Recording transactions in the accounting system requires knowledge of the important characteristics of the elements of financial statements, such as assets and liabilities. In addition, accountants must understand the inherent uncertainty in accounting measures and distinctions between related accounting concepts that are important in evaluating the effects of transactions on the financial statements. Instructions Access the IASB Framework at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following items. (Provide paragraph citations.) (a) Provide the definition of an asset and discuss how the economic benefits embodied in an asset might flow to a company. (b) Provide the definition of a liability and discuss how a company might satisfy a liability. (c) What is “accrual basis”? How do adjusting entries illustrate application of the accrual basis?

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/Marksand- 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 total assets at 31 March 2012? At 2 April 2011? (b) How much cash (and cash equivalents) did M&S have on 31 March 2012? (c) What were M&S’s selling and marketing expenses in 2012? In 2011? (d) What were M&S’s revenues in 2012? In 2011? (e) Using M&S’s financial statements and related notes, identify items that may result in adjusting entries for prepayments and accruals. (f) What were the amounts of M&S’s depreciation and amortization expense in 2011 and 2012?

What are the functions served by the bit of a soldering iron in hand soldering?

Presented below are two independent situations. 1. On January 1, 2014, Simon Company issued $200,000 of 9%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, and January 1. 2. On June 1, 2014, Garfunkel Company issued $100,000 of 12%, 10-year bonds dated January 1 at par plus accrued interest. Interest is payable semiannually on July 1 and January 1. Instructions For each of these two independent situations, prepare journal entries to record the following. (a) The issuance of the bonds. (b) The payment of interest on July 1. (c) The accrual of interest on December 31.

Busytown Corporation, which manufactures shoes, hired a recent college graduate to work in its accounting department. On the first day of work, the accountant was assigned to total a batch of invoices with the use of an adding machine. Before long, the accountant, who had never before seen such a machine, managed to break the machine. Busytown Corporation gave the machine plus $340 to Dick Tracy Business Machine Company (dealer) in exchange for a new machine. Assume the following information about the machines. Busytown Corp. Dick Tracy Co. (Old Machine) (New Machine) Machine cost $290 $270 Accumulated depreciation 140 –0– Fair value 85 425 Instructions For each company, prepare the necessary journal entry to record the exchange. (The exchange has commercial substance.)

What is the connection between the concepts of 'hysteresis’ and ‘propagation mechanisms’?

Identify the two significant disadvantages of electrochemical machining.

George Zidek Corporation bought a machine on June 1, 2012, for $31,000, f.o.b. the place of manufacture. Freight to the point where it was set up was $200, and $500 was expended to install it. The machine’s useful life was estimated at 10 years, with a salvage value of $2,500. On June 1, 2013, an essential part of the machine is replaced, at a cost of $1,980, with one designed to reduce the cost of operating the machine. The cost of the old part and related depreciation cannot be determined with any accuracy. On June 1, 2016, the company buys a new machine of greater capacity for $35,000, delivered, trading in the old machine which has a fair value and trade-in allowance of $20,000. To prepare the old machine for removal from the plant cost $75, and expenditures to install the new one were $1,500. It is estimated that the new machine has a useful life of 10 years, with a salvage value of $4,000 at the end of that time. (The exchange has commercial substance.) Instructions Assuming that depreciation is to be computed on the straight-line basis, compute the annual depreciation on the new equipment that should be provided for the fiscal year beginning June 1, 2016. (Round to the nearest dollar.)

Why will the short-run consumption function be different from the long-run consumption function?

An extrusion operation is used to produce a parison whose mean diameter = 27 mm. The inside and outside diameters of the die that produced the parison are 18 mm and 22 mm, respectively. If the minimum wall thickness of the blow-molded container is to be 0.40 mm, what is the maximum possible diameter of the blow mold?

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

A sheet metal steel part with surface area = 100 cm2 is to be zinc plated. What average plating thickness will result if 15 amps are applied for 12 minutes in a chloride electrolyte solution?

Jim Carrie Company shows a balance of $181,140 in the Accounts Receivable account on December 31, 2013. The balance consists of the following. Installment accounts due in 2014 $23,000 Installment accounts due after 2014 34,000 Overpayments to vendors 2,640 Due from regular customers, of which $40,000 represents accounts pledged as security for a bank loan 79,000 Advances to employees 1,500 Advance to subsidiary company (due in 2015) 81,000 Instructions Illustrate how the information above should be shown on the balance sheet of Jim Carrie Company on December 31, 2013.

Assume the same information as in E17-19 for Lilly Company. In addition, assume that the investment in the Woods Inc. stock was sold during 2015 for $195,000. At December 31, 2015, the following information relates to its two remaining investments of common  stock. Cost Fair Value (at purchase date) (at December 31) Investment in Arroyo Company stock $100,000 $140,000 Investment in Lee Corporation stock 250,000 310,000 Total $350,000 $450,000 Net income before any security gains and losses for 2015 was $905,000. Instructions (a) Compute the amount of net income or net loss that Lilly should report for 2015, taking into consideration Lilly’s security transactions for 2015. (b) Prepare the journal entry to record unrealized gain or loss related to the investment in Arroyo Company stock at December 31, 2015.

Listed below are the transactions of Yasunari Kawabata, D.D.S., for the month of September. Sept. 1 Kawabata begins practice as a dentist and invests $20,000 cash. 2 Purchases dental equipment on account from Green Jacket Co. for $17,280. 4 Pays rent for office space, $680 for the month. 4 Employs a receptionist, Michael Bradley. 5 Purchases dental supplies for cash, $942. 8 Receives cash of $1,690 from patients for services performed. 10 Pays miscellaneous office expenses, $430. 14 Bills patients $5,820 for services performed. 18 Pays Green Jacket Co. on account, $3,600. 19 Withdraws $3,000 cash from the business for personal use. 20 Receives $980 from patients on account. 25 Bills patients $2,110 for services performed. 30 Pays the following expenses in cash: Salaries and wages $1,800; miscellaneous office expenses $85. 30 Dental supplies used during September, $330. Instructions (a) Enter the transactions shown above in appropriate general ledger accounts (use T-accounts). Use the following ledger accounts: Cash, Accounts Receivable, Supplies, Equipment, Accumulated Depreciation—Equipment, Accounts Payable, Owner’s Capital, Service Revenue, Rent Expense, Office Expense, Salaries and Wages Expense, Supplies Expense, Depreciation Expense, and Income Summary. Allow 10 lines for the Cash and Income Summary accounts, and 5 lines for each of the other accounts needed. Record depreciation using a 5-year life on the equipment, the straight-line method, and no salvage value. Do not use a drawing account. (b) Prepare a trial balance. (c) Prepare an income statement, a statement of owner’s equity, and an unclassified balance sheet. (d) Close the ledger. (e) Prepare a post-closing trial balance.

Journal entries for job costing At the beginning of the accounting period, the accountant for ABC Industries estimated that total overhead would be $80 000. Overhead is allocated to jobs on the basis of direct labour cost. Direct labour was budgeted to cost $200 000 this period. During the period only three jobs were worked on. The following summarises the direct materials and labour costs for each:       Job 1231 was finished and sold; job 1232 was finished but is waiting to be sold; and job 1233 is still in process. Actual overhead for the period was $82 000.   Required Prepare the following journal entries. (a)          Cost recorded during production (b)          Cost of jobs completed (c)           Cost of sales (d)          Allocation of overapplied or underapplied overhead allocated on a pro rata basis to the ending balances in work in process, finished goods, and cost of sales

Tina Bailey, a student of intermediate accounting, was heard to remark after a class discussion on segment reporting, “All this is very confusing to me. First we are told that there is merit in presenting the consolidated results, and now we are told that it is better to show segmental results. I wish they would make up their minds.” Evaluate this comment.

Goring Dairy leases its milking equipment from King Finance Company under the following lease terms. 1. The lease term is 10 years, noncancelable, and requires equal rental payments of $30,300 due at the beginning of each year starting January 1, 2014. 2. The equipment has a fair value and cost at the inception of the lease (January 1, 2014) of $220,404, an estimated economic life of 10 years, and a residual value (which is guaranteed by Goring Dairy) of $20,000. 3. The lease contains no renewable options, and the equipment reverts to King Finance Company upon termination of the lease. 4. Goring Dairy’s incremental borrowing rate is 9% per year. The implicit rate is also 9%. 5. Goring Dairy depreciates similar equipment that it owns on a straight-line basis. 6. Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. Instructions (a) Evaluate the criteria for classification of the lease, and describe the nature of the lease. In general, discuss how the lessee and lessor should account for the lease transaction. (b) Prepare the journal entries for the lessee and lessor at January 1, 2014, and December 31, 2014 (the lessee’s and lessor’s year-end). Assume no reversing entries. (c) What would have been the amount capitalized by the lessee upon the inception of the lease if: (1) The residual value of $20,000 had been guaranteed by a third party, not the lessee? (2) The residual value of $20,000 had not been guaranteed at all? (d) On the lessor’s books, what would be the amount recorded as the Net Investment (Lease Receivable) at the inception of the lease, assuming: (1) The residual value of $20,000 had been guaranteed by a third party? (2) The residual value of $20,000 had not been guaranteed at all? (e) Suppose the useful life of the milking equipment is 20 years. How large would the residual value have to be at the end of 10 years in order for the lessee to qualify for the operating method? (Assume that the residual value would be guaranteed by a third party.) (Hint: The lessee’s annual payments will be appropriately reduced as the residual value increases.)

Hughie, Dewey, and Louie are equal shareholders in HDL, an S corporation. HDL’s S election terminates under each of the following alternative scenarios. When is the earliest it can again operate as an S corporation?

Draw a supply and demand diagram with the price of labour (the wage rate) on the vertical axis and the quantity of labour (the number of workers) on the horizontal axis. What will happen to employment if the government raises wages from the equilibrium to some minimum wage above the equilibrium?

What is accuracy in measurement?

Livesey Company has signed a long-term contract to build a new basketball arena. The total revenue related to the contract is $120 million. Estimated costs for building the arena are $40 million in the first year and $30 million in both the second and third years. The costs cannot be reliably estimated. How much revenue should Livesey Company report in the first year under IFRS?

What types of contractual obligations must be disclosed in great detail in the notes to the balance sheet? Why do you think these detailed provisions should be disclosed?