Question & Answer

Dingel Corporation has contracted with you to prepare a statement of cash flows. The controller has provided the following information. December 31 2014 2013 Buildings $ –0– $29,750 Equipment 45,000 20,000 Patents 5,000 6,250 Investments –0– 3,000 Inventory 12,000 9,000 Accounts receivable 12,250 10,000 Cash 33,500 13,000 $107,750 $91,000 Share capital—ordinary $ 43,000 $33,000 Retained earnings 20,750 6,000 Allowance for doubtful accounts 3,000 4,500 Accumulated depreciation on equipment 2,000 4,500 Accumulated depreciation on buildings –0– 6,000 Accounts payable 5,000 3,000 Dividends payable –0– 5,000 Long-term notes payable 31,000 25,000 Notes payable, short-term (non-trade) 3,000 4,000 $107,750 $91,000 Additional data related to 2014 are as follows. 1. Equipment that had cost $11,000 and was 40% depreciated at time of disposal was sold for $2,500. 2. $10,000 of the long-term notes payable was paid by issuing ordinary shares. 3. Cash dividends paid were $5,000. 4. On January 1, 2014, the building was completely destroyed by a flood. Insurance proceeds on the building were $32,000. 5. Equity investments (non-trading) were sold at $1,700 above their cost. 6. Cash was paid for the acquisition of equipment. 7. A long-term note for $16,000 was issued for the acquisition of equipment. 8. Interest of $2,000 and income taxes of $6,500 were paid in cash. Instructions Prepare a statement of cash flows using the indirect method.

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) Which method of computing net cash provided by operating activities does M&S use? What were the amounts of net cash provided by operating activities for the years 2011 and 2012? Which two items were most responsible for the increase in net cash provided by operating activities in 2012? (b) What was the most significant item in the cash flows used for investing activities section in 2012? What was the most significant item in the cash flows used for financing activities section in 2012? (c) Where is “deferred income taxes” reported in M&S’s statement of cash flows? Why does it appear in that section of the statement of cash flows? (d) Where is depreciation reported in M&S’s statement of cash flows? Why is depreciation added to net income in the statement of cash flows?

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 method of computing net cash provided by operating activities does Coca-Cola use? What method does PepsiCo use? What were the amounts of cash provided by operating activities reported by Coca-Cola and PepsiCo in 2011? (b) What was the most significant item reported by Coca-Cola and PepsiCo in 2011 in their investing activities sections? What is the most significant item reported by Coca-Cola and PepsiCo in 2011 in their financing activities sections? (c) What were these two companies’ trends in net cash provided by operating activities over the period 2009 to 2011? (d) Where is “depreciation and amortization” reported by Coca-Cola and PepsiCo in their statements of cash flows? What is the amount and why does it appear in that section of the statement of cash flows? (e) Based on the information contained in Coca-Cola’s and PepsiCo’s financial statements, compute the following 2011 ratios for each company. These ratios require the use of statement of cash flows data. (These ratios were covered in Chapter 5.) (1) Current cash debt coverage. (2) Cash debt coverage. (f) What conclusions concerning the management of cash can be drawn from the ratios computed in (e)?

If XYZ Corporation is a shareholder of BCD Corporation, how many times will  BCD’s before-tax income potentially be taxed? Has Congress provided any tax relief for this result? Explain.

In January of year 0, Justin paid $4,800 for an insurance policy that covers his business property for accidents and casualties. Justin is a calendar-year taxpayer who uses the cash method of accounting. What amount of the insurance premium may Justin deduct in year 0 in each of the following alternative scenarios?

] Given the following tax structure, what tax would need to be assessed on Venita to make the tax horizontally equitable?

Prior Company’s condensed financial statements provide the following information.   Instructions (a) Determine the following for 2014. (1) Current ratio at December 31. (2) Acid-test ratio at December 31. (3) Accounts receivable turnover. (4) Inventory turnover. (5) Return on assets. (6) Profit margin on sales. (b) Prepare a brief evaluation of the financial condition of Prior Company and of the adequacy of its profits.

1.      : Press the board to devise a more comprehensive set of selection criteria—including test results, but also taking into account supervisory experience, ability to motivate employees, and knowledge of agency procedures—that can be explained and justified to the board and to employees.

Plant-wide versus production cost pools Flexible Manufacturers produces small batches of customised products. The accounting system is set up to allocate plant overhead to each job using the following production cost pools and overhead allocation rates       Actual resources used for job 75:       The manufacturing accountant wants to simplify the cost accounting system and use a plant wide rate. If the preceding costs are grouped into a single cost pool and allocated based on labour hours, the rate would be $35 per direct labour hour.   Required (a)          What cost should be allocated to job 75 using the plant-wide overhead rate? (b)          What cost should be allocated to job 75 using the production cost pool overhead rates? (c)           Why do the allocated amounts in parts (a) and (b) differ? (d)          Which method would you recommend? Explain your choice.

In what ways was it felt that the pronouncements issuedby the Financial Accounting Standards Board would carrygreater weight than the opinions issued by the AccountingPrinciples Board?

Balanced scorecard; strategy map and implementation Terence Smythe, a veterinariant, decided to join a small group of vets so that he no longer has to be on call every night. Practice members share the responsibility of emergencies with other members of the group. In the past, Terrence differentiated his practice by specialising in the treatment of large farm. None of the other vets specialise in large farm animals, but all of them treat some farm animals. Terrences’s son just finished an accounting degree and recommended that the vets group consider implementing a balanced scorecard as they develop the policies and practices for the new group.                                           Required (a)     Explain what each of the four perspectives of the balanced scorecard mean in the context of a vets group. (b)     Recommend several methods the group could use to assess a performance objective of patient satisfaction. (c)     Recommend two measures for each of the four perspectives for the vets group. Explain your recommendations. (d)     Construct a strategy map to reflect the links between the measures selected. Briefly discuss the links.

Clemson Company had the following stockholders’ equity as of January 1, 2014. Common stock, $5 par value, 20,000 shares issued $100,000 Paid-in capital in excess of par—common stock 300,000 Retained earnings 320,000 Total stockholders’ equity $720,000 During 2014, the following transactions occurred. Feb. 1 Clemson repurchased 2,000 shares of treasury stock at a price of $19 per share. Mar. 1 800 shares of treasury stock repurchased above were reissued at $17 per share. Mar. 18 500 shares of treasury stock repurchased above were reissued at $14 per share. Apr. 22 600 shares of treasury stock repurchased above were reissued at $20 per share. Instructions (a) Prepare the journal entries to record the treasury stock transactions in 2014, assuming Clemson uses the cost method. (b) Prepare the stockholders’ equity section as of April 30, 2014. Net income for the first 4 months of 2014 was $130,000.

Identify the segment information that is required to be disclosed by GAAP.

Presented below is information related to copyrights owned by Walter de la Mare Company at December 31, 2014. Cost $8,600,000 Carrying amount 4,300,000 Expected future net cash fl ows 4,000,000 Fair value 3,200,000 Assume that Walter de la Mare Company will continue to use this copyright in the future. As of December 31, 2014, the copyright is estimated to have a remaining useful life of 10 years. Instructions (a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2014. The company does not use accumulated amortization accounts. (b) Prepare the journal entry to record amortization expense for 2015 related to the copyrights. (c) The fair value of the copyright at December 31, 2015, is $3,400,000. Prepare the journal entry (if any) necessary to record the increase in fair value.

Explain the difference between weak-form, semistrongform, and strong-form efficiency. Which of these forms of efficiency is most difficult to test? Which is most likely to be refuted? Explain how to test weakform efficiency in the stock market. (LO6)

Breslin Inc. made a capital contribution of investment property to its 100 percent-owned subsidiary, Crisler Company. The investment property had a fair market value of $3,000,000 and a tax basis to Breslin of $2,225,000.

Can a taxpayer with very little current-year income choose to not claim any depreciation deduction for the current year and thus save depreciation deductions for the future when the taxpayer expects to be more profitable?

Provide examples of off-balance sheet activities. Why are regulators concerned about them? (LO2)

Mason (single) is a 50 percent shareholder in Angels Corp. (an S Corporation). Mason receives a $180,000 salary working full time for Angels Corp. Angels Corp. reported $400,000 of taxable business income for the year . Before considering his business income allocation from Angels and the self-employment tax deduction (if any), Mason’s adjusted gross income is $180,000 (all salary from Angels Corp.). Mason claims $50,000 in itemized deductions. Answer the following questions for Mason. a. What is Mason’s self-employment tax liability? b. Assuming the business income allocated to Mason is income from a specified service trade or business, what is Mason’s deduction for qualified business income? Ignore the wage-based limitation when computing the deduction.  c. Assume the same facts as in question (b), except that Angels Corp. reported $150,000 of taxable business income for the year. What is Mason’s deduction for qualified business income? Ignore the wage-based limitation when computing the deduction. d. Assuming the original facts, what is Mason’s net investment income tax liability (assume no investment expenses)? e. Assuming the original facts, what is Mason’s additional Medicare tax liability?

What is meant by the term green compact?

Briefly discuss the convergence efforts that are underway in the area of intangible assets.

What are closing entries and why are they necessary?

What are the desirable features of atomic or molecular self-assembly processes in nanotechnology?

Boey Company reported net income of $25,000 in 2015. It had the following amounts related to its pension plan in 2015: Actuarial liability gain $10,000; Unexpected asset loss $14,000; Accumulated other comprehensive income (G/L) (beginning balance), zero. Determine for 2015 (a) Boey’s other comprehensive income, and (b) comprehensive income.

The following defined pension data of Rydell Corp. apply to the year 2014. Projected benefi t obligation, 1/1/14 (before amendment) $560,000 Plan assets, 1/1/14 546,200 Pension liability 13,800 On January 1, 2014, Rydell Corp., through plan amendment, grants prior service benefi ts having a present value of 120,000 Settlement rate 9% Service cost 58,000 Contributions (funding) 65,000 Actual (expected) return on plan assets 52,280 Benefi ts paid to retirees 40,000 Prior service cost amortization for 2014 17,000 Instructions For 2014, prepare a pension worksheet for Rydell Corp. that shows the journal entry for pension expense and the year-end balances in the related pension accounts.