Question & Answer

On January 1, 2014, JWS Corporation issued $600,000 of 7% bonds, due in 10 years. The bonds were issued for $559,224, and pay interest each July 1 and January 1. JWS uses the effective-interest method. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 8%.

How can information based on past transactions be used to predict future cash flows?

Why might pension funds be exposed to interest rate risk? How can pension funds reduce their exposure to interest rate risk? (LO7)

What would the process of adjustment to the unanticipated size of the increase in aggregate demand look like if people had adjusted their inflationary expectation upwards from zero but to a rate less than p1?

Tedesco Company changed depreciation methods in 2014 from double-declining-balance to straight-line. Depreciation prior to 2014 under double-declining-balance was $90,000, whereas straight-line depreciation prior to 2014 would have been $50,000. Tedesco’s depreciable assets had a cost of $250,000 with a $40,000 salvage value, and an 8-year remaining useful life at the beginning of 2014. Prepare the 2014 journal entries, if any, related to Tedesco’s depreciable assets.

Criticise the classical theory that higher government spending will necessarily crowd out private spending.

A product is started in department 1 and completed in department 2. Is department 1 a support department or an operating department? Explain.

What will happen to the demand for capital services and the equilibrium rental if the price of some other factor, say labour, changes? Assume that wage rates fall. Trace through the effects on a three-section diagram like that of Figure 10.13. (Clue: a fall in wages will have two significant effects: it will reduce costs and hence the price of the product, so that more will be sold; and it will make labour cheaper relative to capital. How will these two things affect the demand for capital?)

1.    : Fortune magazine and the Hay Group found that a clear, stable strategy is one of the defining characteristics of companies on the list of “The World’s Most Admired Companies.” Why might this be the case?

4 A disk-shaped part is to be cast out of aluminum. The diameter of the disk = 500 mm and its thickness = 20 mm. If the mold constant = 2.0 sec/mm2 in Chvorinov's rule, how long will it take the casting to solidify?

In the previous problem, propose a way of scheduling to meet the weekly demand if there were four machines instead of three.

1. If the number unemployed exceeded the total annual outflow, what could we conclude about the average duration of unemployment? 2. Make a list of the various inflows to and outflows from employment from and to (a) unemployment; (b) outside the workforce.

Moana is a single taxpayer who operates a sole proprietorship. She expects her taxable income next year to be $250,000, of which $200,000 is attributed to her sole proprietorship. Moana is contemplating incorporating her sole proprietorship. Using the single individual tax brackets and the corporate tax rate in Appendix C, find out how much current tax this strategy could save Moana (ignore any Social Security, Medicare, or self-employment tax issues). How much income should be left in the corporation?

Show the effect of an increase in government expenditure by using (a) the injections and withdrawals diagram; (b) the income/expenditure diagram (see Figures 17.8 and 17.10).

Assume that your publicly traded company attempts to be completely transparent about its financial condition, and provides thorough information about its debt, sales, and earnings every quarter. Explain why there still may be much uncertainty surrounding your company’s stock price. (LO3)

If expectations were formed rationally with no time lags, what would be the implications for short-run DAS curves and for the response to a rise in aggregate demand?

1. It is sometimes claimed that the market for various stocks and shares is perfectly competitive, or nearly so. Take the case of the market for shares in a large company like Apple. Go through each of the four assumptions above and see if they apply in this case. (Don’t be misled by assumption (1). The ‘firm’ in this case is not Apple itself.) 2. Is the market for gold perfectly competitive?

At the time that a management group of RJR Nabisco initially considered engaging in a leveraged buyout, RJR’s stock price was less than $70 per share. Ultimately, RJR was acquired by the firm Kohlberg, Kravis Roberts (KKR) for about $108 per share. Does the large discrepancy between the stock price before an acquisition was considered and after the acquisition mean that RJR’s price was initially undervalued? If so, does this imply that the market was inefficient? (LO3, LO6)

Solve the previous problem except that the metal to be welded is high carbon steel, the cross-sectional area of the weld = 25.0 mm2, and the melting factor = 0.6.

On January 3, 2013, Martin Company purchased for $500,000 cash a 10% interest in Renner Corp. On that date, the net assets of Renner had a book value of $3,700,000. The excess of cost over the underlying equity in net assets is attributable to undervalued depreciable assets having a remaining life of 10 years from the date of Martin’s purchase. The fair value of Martin’s investment in Renner securities is as follows: December 31, 2013, $560,000, and December 31, 2014, $515,000. On January 2, 2015, Martin purchased an additional 30% of Renner’s stock for $1,545,000 cash when the book value of Renner’s net assets was $4,150,000. The excess was attributable to depreciable assets having a remaining life of 8 years. During 2013, 2014, and 2015, the following occurred. Renner Dividends Paid by Net Income Renner to Martin 2013 $350,000 $15,000 2014 450,000 20,000 2015 550,000 70,000 Instructions On the books of Martin Company, prepare all journal entries in 2013, 2014, and 2015 that relate to its investment in Renner Corp., reflecting the data above and a change from the fair value method to the equity method.

] Megan and Matthew are equal partners in the J & J Partnership (calendar-year-end entity). On January 1 of the current year, they decide to liquidate the partnership. Megan’s basis in her partnership interest is $100,000, and Matthew’s is $35,000. The two partners receive identical distributions, with each receiving the following assets: Tax BasisFMV Cash $ 30,000 $ 30,000 Inventory 5,000 6,000 Land 500 1,000    Totals $ 35,500 $37,000 a. What are the amount and character of Megan’s recognized gain or loss? b. What is Megan’s basis in the distributed assets? c. What are the amount and character of Matthew’s recognized gain or loss? d. What is Matthew’s basis in the distributed assets?

Employees are paid every Saturday for the preceding work week. If a balance sheet is prepared on Wednesday, December 31, what does the amount of wages earned during the first three days of the week (12/29, 12/30, 12/31) represent? Explain.

Classify the types of financial institutions mentioned in this chapter as either depository or nondepository. Explain the general difference between depository and nondepository institutions as sources of funds. It is often said that all types of financial institutions have begun to offer services that were previously offered only by certain types. Consequently, the operations of many financial institutions are becoming more similar. Nevertheless, performance levels still differ significantly among types of financial institutions. Why? (LO3)

Stereolithography is to be used to build the part in Figure 33.1 in the text. Dimensions of the part are: height = 125 mm, outside diameter = 75 mm, inside diameter = 65 mm, handle diameter = 12 mm, handle distance from cup = 70 mm measured from center (axis) of cup to center of handle. The handle bars connecting the cup and handle at the top and bottom of the part have a rectangular cross section and are 10 mm thick and 12 mm wide. The thickness at the base of the cup is 10 mm. The laser beam diameter = 0.25 mm, and the beam can be moved across the surface of the photopolymer at = 500 mm/s. Layer thickness = 0.20 mm. Compute an estimate of the time required to build the part, if 10 s are lost each layer to lower the height of the platform that holds the part. Neglect post-curing time.

What are some of the disadvantages and limitations of brazing?