Question & Answer

Deirdre sold 100 shares of stock to her brother, James, for $2,400. Deirdre purchased the stock several years ago for $3,000.  a. What gain or loss does Deirdre recognize on the sale? b. What amount of gain or loss does James recognize if he sells the stock for $3,200? c. What amount of gain or loss does James recognize if he sells the stock for $2,600? d. What amount of gain or loss does James recognize if he sells the stock for $2,000?

In a given economy, the supply of money is £10 billion; the velocity of circulation of money (spent on final goods and services) is 3; and the price index is 2.00.          (a)  What is the level of real national income?          (b)  How much have prices risen (in percentage terms) since the base year?          (c)  Assume that money supply increases by 10 per cent and that the velocity of circulation remains constant. What will be the rate of inflation if (i) there is no increase in real national income; (ii) real national income increases by 10 per cent; (iii) real national income increases by 5 per cent?

The following comment appeared in the financial press: “Inadequate financial disclosure, particularly with respect to how management views the future and its role in the marketplace, has always been a stone in the shoe. After all, if you don’t know how a company views the future, how can you judge the worth of its corporate strategy?” What are some arguments for reporting earnings forecasts?

Tawana owns and operates a sole proprietorship and has a 40 percent marginal tax rate.  She provides her son, Jonathon, $8,000 a year for college expenses.  Jonathon works as a pizza delivery person every fall and has a marginal tax rate of 15 percent.  a. What could Tawana do to reduce her family tax burden?  b.How much pretax income does it currently take Tawana to generate the $8,000 after-taxes given to Jonathon?  c. If Jonathon worked for his mother’s sole proprietorship, what salary would she have to pay him to generate $8,000 after taxes (ignoring any Social Security, Medicare, or self-employment tax issues)?  d.How much money would this strategy save?

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.

In a tensile test on a metal specimen, true strain = 0.08 at a stress = 265 MPa. When true stress = 325 MPa, true strain = 0.27. Determine the strength coefficient and the strain-hardening exponent in the flow curve equation.

Blue Devil Savings and Loan Association has a large number of 10-year fixed-rate mortgages and obtains most of its funds from short-term deposits. It uses the yield curve to assess the market’s anticipation of future interest rates. It believes that expectations of future interest rates are the major force in affecting the yield curve. Assume that an upward-sloping yield curve with a steep slope exists. Based on this information, should Blue Devil consider using financial futures as a hedging technique? Explain. (LO2)

Dierdorf Inc., a closely held corporation, has decided to go public. The controller, Ed Floyd, is concerned with presenting interim data when a LIFO inventory valuation is used. What problems are encountered with LIFO inventories when quarterly data are presented?

Harrisburg Company is considering changing its inventory valuation method from FIFO to LIFO because of the potential tax savings. However, management wishes to consider all of the effects on the company, including its reported performance, before making the final decision. The inventory account, currently valued on the FIFO basis, consists of 1,000,000 units at $8 per unit on January 1, 2014. There are 1,000,000 shares of common stock outstanding as of January 1, 2014, and the cash balance is $400,000. The company has made the following forecasts for the period 2014–2016. 2014 2015 2016 Unit sales (in millions of units) 1.1 1.0 1.3 Sales price per unit $10 $12 $12 Unit purchases (in millions of units) 1.0 1.1 1.2 Purchase price per unit $8 $9 $10 Annual depreciation (in thousands of dollars) $300 $300 $300 Cash dividends per share $0.15 $0.15 $0.15 Cash payments for additions to and replacement of plant and equipment (in thousands of dollars) $350 $350 $350 Income tax rate 40% 40% 40% Operating expenses (exclusive of depreciation) as a percent of sales 15% 15% 15% Common shares outstanding (in millions) 1 1 1 Instructions (a) Prepare a schedule that illustrates and compares the following data for Harrisburg Company under the FIFO and the LIFO inventory method for 2014–2016. Assume the company would begin LIFO at the beginning of 2014. (1) Year-end inventory balances. (3) Earnings per share. (2) Annual net income after taxes. (4) Cash balance. Assume all sales are collected in the year of sale and all purchases, operating expenses, and taxes are paid during the year incurred. (b) Using the data above, your answer to (a), and any additional issues you believe need to be considered, prepare a report that recommends whether or not Harrisburg Company should change to the LIFO inventory method. Support your conclusions with appropriate arguments.

Reciprocal method The Brown and Brinkley Brokerage firm is organised into two major sales divisions: institutional clients and retail clients. The firm also has two support departments: research and administration. The research department’s costs are allocated to the other departments based on a log of hours spent on tasks for each user. The administration department’s costs are allocated based on the number of employees in each department.   Records are available for last period as follows.   Required Using the reciprocal method, determine the total cost of operations for each sales division. Use either simultaneous equations or Excel Solver.

In a turning operation on ductile steel, it is desired to obtain an actual surface roughness of 63 µ-in with a 2/64 in nose radius tool. The ideal roughness is given by Eq. (24.1) and an adjustment will have to be made using Figure 24.2 to convert the 63 µ-in actual roughness to an ideal roughness, taking into account the material and cutting speed. Disposable inserts are used at a cost of $1.75 per cutting edge (each insert costs $7.00 and there are four edges per insert). Average time to change each insert = 1.0 min. The workpiece length = 30.0 in and its diameter = 3.5 in. The machine and operator’s rate = $39.00 per hour including applicable overheads. The Taylor tool life equation for this tool and work combination is given by: vT0.23 f 0.55 = 40.75, where T = tool life, min; v = cutting speed, ft/min; and f = feed, in/rev. Solve for (a) the feed in in/rev that will achieve the desired actual finish, (b) cutting speed for minimum cost per piece at the feed determined in (a). Hint: To solve (a) and (b) requires an iterative computational procedure. Use of a spreadsheet calculator is recommended for this iterative procedure

What is springback in sheet-metal bending?

What are the relative advantages and disadvantages of mechanical presses versus hydraulic presses in sheet metalworking?

Is sustainability achievable in all organisations regardless of their           operating activities?

Describe the graduated-payment mortgage. What type of homeowners would prefer this type of mortgage? (LO2)

In addition to surface cleaning, what is the main function performed by shot peening?

Illustrate on four separate diagrams (as in Figure 3.6) the effect of different elasticities of demand and supply on the incidence of a subsidy.

If this analysis is correct, namely that a reduction in wages will reduce the aggregate demand for goods, what assumption must we make about the relative proportions of wages and profits that are spent (given that a reduction in real wage rates will lead to a corresponding increase in rates of profit)?

(1)   {Planning} Laurie is thinking about investing in one or several of the following investment options: Corporate bonds (ordinary interest paid annually) Dividend-paying stock (qualified dividends) Life insurance (tax-exempt) Savings account Growth stock   a. Assuming all of the options earn similar returns before taxes, rank Laurie’s investment options from highest to lowest according to their after-tax returns.   b. Which of the investments employ the deferral and/or conversion tax planning strategies?   c. How does the time period of the investment affect the returns from these alternatives?   d. How do these alternative investments differ in terms of their nontax characteristics?

According to the video on sheet-metal shearing, what is the blade rake angle?

Franklin, Jefferson, and Washington formed the Independence Partnership (a calendar-year-end entity) by contributing cash 10 years ago. Each partner owns an equal interest in the partnership and has an outside basis in their partnership interest of $104,000. On January 1 of the current year, Franklin sells their partnership interest to Adams for a cash payment of $122,000. The partnership has the following assets and no liabilities as of the sale date: Tax Basis Fair Market Value Cash $ 18,000 $ 18,000 Accounts receivable -0- 12,000 Inventory 69,000 81,000 Equipment 180,000 225,000 Stock investment 45,000 30,000    Totals $ 312,000 $ 366,000 The equipment was purchased for $240,000, and the partnership has taken $60,000 of depreciation. The stock was purchased seven years ago. a. What is Franklin’s overall gain or loss on the sale of their partnership interest? b. What is the character of Franklin’s gain or loss?

Explain why the medical expense provisions are sometimes referred to as “wherewithal” deductions and how this rationale is reflected in the limits on these deductions.

What is the difference between a CPA’s unqualified opinion or “clean” opinion and a qualified one?

List the factors that affect the hold down pressure in a drawing operation according to the video on sheet-metal stamping dies and processes.

Briefly describe some of the similarities and differences between GAAP and IFRS with respect to statement of financial position (balance sheet) reporting.